Definition of Life Insurance 壽險定義

Needs for Life Insurance 壽險的需求

The central question is not whether a person will die but when. If a breadwinner dies early, the family loses future income, while mortgage payments, living costs and school fees continue. Savings take time to build up, but life insurance gives protection as soon as the policy is in force, and the agreed sum insured becomes payable if the life insured dies. A life cannot be valued precisely in money, so life insurance is not a contract of indemnity: the sum insured is agreed at inception according to need and ability to pay, and a claim does not require proof of actual loss.

Common personal and family needs are final expenses such as funeral costs, repayment of a mortgage and other debts, income for dependants, and funds for children's education. Having no dependants does not mean having no need: a person may still have debts to clear or elderly parents to support. Note that Hong Kong has abolished estate duty for deaths on or after 11 February 2006, so there is no longer a need to insure in order to pay Hong Kong estate duty.

The risk is not only dying too soon but also living too long: the longer the retirement, the greater the risk of savings running out. People in Hong Kong have a long life expectancy, and the Mandatory Provident Fund may not meet all retirement costs, so annuities and savings-type life policies can supplement it. Disability or serious illness can also stop income and raise expenses, which riders or related insurance products can address.

In business, a company can buy key person insurance to meet the lost profits and recruitment costs caused by the death of an important employee, with its insurable interest limited to the financial loss it could suffer. Partners or shareholders can use life insurance to set aside funds to buy a deceased owner's share of the business. A life policy can also be assigned to a bank as security for a loan. Actual needs vary from person to person and change with life stages; under the Insurance Authority's Guideline on Financial Needs Analysis (GL30), a customer's financial position and protection needs should be understood before a long term insurance product is recommended.