Life Insurance 壽險
The core of life insurance is a contractual promise by an authorized insurer to pay a benefit when the life insured dies. The applicant must have an insurable interest at inception, and acceptance depends on the insurer's underwriting decision; willingness to pay does not ensure acceptance.
Distinguish the main types by their payment triggers. Term insurance pays a death benefit only if death occurs during the specified term while the policy remains valid. Endowment insurance pays the face amount on earlier death or survival to the specified maturity date. Whole life insurance is designed to continue throughout life, with its basic face amount payable on death rather than survival to a specified maturity date.
Universal life insurance combines cash value accumulation with adjustable cover: premiums are flexible, benefits can be adjusted, and expenses and charges are disclosed to the purchaser. It separately identifies the pure cost of protection, investment earnings and company expenses for the policyholder, an arrangement called unbundling.
As an investment vehicle, life insurance addresses uncertainty and income loss from premature death, with low risk and low yield as general characteristics. Long-term investment and saving for specific purposes are advantages except for term insurance. Premiums reduce cash available now, while short-term liquidity and flexibility are limited; holding a policy does not give direct ownership of the underlying assets. [Source: IA Paper V Study Notes, 2023 edition, section 3.8.1](https://www.peak.edu.hk/exam/en/docs/SN_P5_eng_2023.pdf)
Annuity 年金
An annuity exchanges a single premium or a series of premiums for periodic payments to an annuitant, for life or on other agreed terms and conditions. Paying HK$1,500,000 for HK$10,000 a month for 20 years produces total nominal payments of HK$2,400,000; this total is not an annual rate of return.
Immediate and deferred describe when payments begin. An immediate annuity is usually bought with a single premium and starts paying after the first annuity period, which may be one month or six months. A deferred annuity starts at a specified time or age. The starting date and the duration of payments are separate ways of classifying annuities.
An annuity certain pays for an agreed fixed term, which is not shortened by the annuitant's death during that term. A guaranteed annuity treats the specified term as a minimum payment period, whether the annuitant lives or dies during it. If the annuitant survives beyond that period, payments continue for life; this is also called life income with period certain.
Annuities can provide retirees with stable, guaranteed periodic income, support long-term financial plans and cushion adverse financial developments. Lifetime payments help address income shortages caused by longevity. Limitations include low returns, poor short-term liquidity, limited flexibility and no ownership of underlying assets. Inflation reduces the purchasing power of fixed payments, and an annuitant may outlive payments that last only for a fixed term. [Source: IA Paper V Study Notes, 2023 edition, section 3.8.2](https://www.peak.edu.hk/exam/en/docs/SN_P5_eng_2023.pdf)
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