IV. Investment-linked Long Term Insurance Policies 投資相連長期保單

Investment-linked long term insurance developed from traditional life insurance, with different products combining cover, flexibility in premiums and death benefits, and investment choice. Unit-linked policies appeared in the UK in 1957 and investment-linked long term products reached Hong Kong in the late 1980s, with growth supported by distribution arrangements, investment demand and customers’ familiarity with funds.

Investment-linked long term insurance combines insurance protection with investment: premiums after applicable charges are invested, policy value moves with the underlying funds, and the policyholder receives the investment gains and bears the losses. A minimum guaranteed death benefit provides a floor for death protection; it does not guarantee the investment principal or surrender proceeds.

Investment-linked long term policies specify their charges separately, covering insurance and policy expenses as well as investment and transaction costs. Assessing the cost requires understanding each charge's calculation basis, deduction period and whether it arises at policy or underlying fund level.

Charges · Charges related to Investment-linked Policy

Investment-linked long term policies include investment-linked annuities and life insurance, while a Protection Linked Plan (PLP) is an investment-linked assurance scheme with high insurance protection. The key distinctions concern premium and sum assured flexibility, the conditions attached to that flexibility, and PLP requirements for death benefits, charges and investment choices.

Investment-linked policies have two main premium structures: single premium plans use a lump sum, while regular premium plans build savings through recurring payments. Both combine insurance protection with investment and allow policyholders to follow their own investment strategy.

Single Premium Plan · Regular Premium Plan

Calculations for investment-linked policies depend on the order of unit purchases, unit cancellations and charges, followed by the relevant surrender or death benefit formula. Single and regular premium policies use similar principles, but charging times, premium allocation and the amount at risk affect the results.

Basic Calculations of Single Premium Policies · Premium Application Method One · Top-up Application · Partial Withdrawal (Partial Surrender) Benefit · Surrender Value · Death Benefit · Return on Gross Premium · Premium Application Method Two · Basic Calculations of Regular Premium Policies · Monthly Application of Regular Premium

Under the structures covered by this syllabus, accumulation units reflect investment results through changes in unit price, while distribution units reflect them through changes in the number of units. The policyholder receives all investment profits and bears all investment losses.

Hong Kong authorised insurers commonly classify investment-linked funds as deposit funds and unitised funds, with different objectives, risks, returns and liquidity. Fund allocation and switching help policyholders match their investments to personal objectives, subject to fund risks, guarantee conditions and applicable charges.

Deposit Fund · Unitised Funds · Switching

Investment-linked policies offer potential investment returns and flexibility in fund choice, premiums, protection and partial withdrawals. These benefits are subject to policy conditions, charges and account balances, and do not remove the investment risks of the underlying funds.

Investment-linked policy values and returns depend on the underlying investments and are also exposed to liquidity, credit, foreign exchange and reinvestment risks. Borrowing to pay premiums can result in interest costs exceeding investment returns, while a premium holiday may reduce policy value and bonuses or even lead to lapse.

Compare the three policy types by their guarantees, who bears investment risk, and their arrangements for premiums, benefits and withdrawals. Guaranteed policies provide contractual guarantees, participating policies also share non-guaranteed surplus, and investment-linked policy values follow the linked funds, with policyholders bearing the investment risk.

Guaranteed Policies/Without-Profits/Non-Participating Policies · With-Profits/Participating Policies · Comparison Criteria

Hong Kong has no capital gains tax, and returns from funds underlying investment-linked policies are normally not taxable there, but an overseas resident's own country may treat them differently. Prospective policyholders should be advised to obtain their own independent tax advice.

Selling an ILAS product requires an assessment of whether the product and investment choices suit the customer, followed by clear explanations of risks, charges and customer rights. The principal brochure, cooling-off rights, replacement procedures and gift restrictions help customers make informed decisions.

Customer Protection Requirements Relating to Sale of Investment Linked Assurance Schemes (ILAS) · Information to be Communicated in Sales Process · Principal Brochure · Cooling-off Period · Policy Replacement · Guideline of Offering Gifts (GL25)

Licensed insurance intermediaries must uphold the trust of clients and insurers and comply with the applicable codes and regulatory requirements. Candidates should recognise misrepresentation, twisting, fraud and rebating, and understand how these practices harm client decisions and the industry's reputation.

A linked policy illustration document shows projected surrender values under different assumed returns, after relevant charges, helping customers understand charges and the effect of early termination. Customers must review and sign it before signing the application form, and the assumed returns are not guaranteed.

Linked Policy Illustration Documents

Administration of investment-linked long term policies covers issuance, delivery, changes and continuing information for policyholders. Candidates should distinguish the policy statement, which records individual policy transactions and values, from the fund performance report, and understand their timing and contents.

Policy Issuance · Policy Delivery · Policy Changes · Information to Policyholders · Policy Statement · Fund Performance Report