Charges 收費
Authorized insurers charge fees to cover distribution, marketing, administration and insurance expenses, and to provide a profit margin. These costs arise in all types of insurance; investment-linked policies specify their charges separately for policyholders. An administration or maintenance fee is normally a fixed annual amount, a percentage of premiums, or both.
The cost of insurance covers mortality, annuity payments and other benefits; in life insurance it is also called a mortality charge. It mainly depends on the life assured's gender, age, smoking habit, sum assured, risk class and death benefit option. Hong Kong authorized insurers normally refer to local or credible overseas mortality tables to estimate death claim expenses. Annuities use annuity mortality tables rather than life insurance mortality tables.
Policy fees or initial charges recover distribution, marketing and policy issue costs; they may also be called premium or contribution charges. One method charges a percentage of premiums, potentially 100% of first-year regular premiums, with later percentages on a sliding scale. Another uses an initial investment allocation ratio: a 95% ratio means 5% of contributions is an initial charge, leaving 95% for investment, subject to other charges.
Another arrangement uses an initial contribution period: units bought during it enter a notional initial units account, from which initial charges are usually deducted as percentages of its value. The period is commonly the first 18 months but may extend over several years or the whole policy term; some plans offer a choice. Deductions may continue beyond that period. Thus, 'initial' refers to recovering setup costs, rather than necessarily charging only at inception; increases in regular premiums and single-premium top-ups also attract the same set of initial charges on the additional contributions.
Charges related to Investment-linked Policy 與投資相連保單有關的收費
The bid-offer spread is the difference between the offer price at which the policyholder buys units from the insurer and the bid price at which they sell units back. The bid price normally equals net asset value, and the percentage spread uses the bid price as its base. A HK$12 bid price and HK$12.60 offer price give a spread of (12.60 − 12) ÷ 12 = 5%. The insurer normally uses this charge for policy marketing and fund trading costs; its amount generally increases with policy size.
The investment fund manager charges a fund management fee for managing the fund, usually as a specified percentage of its market value, for example 0.5% to 1% a year. It is reflected in unit prices. The level depends on competition, asset types, management activity and the insurer's profit requirements; index funds requiring less management activity normally have lower charges.
A fund switching charge concerns moving investments between different funds offered by the insurer. An insurer may allow several free switches each year, while some charge nothing for switching. A surrender charge is normally deducted from the value of units sold on surrender to recover upfront expenses already incurred but not yet recovered. It normally follows a sliding scale and may reach 100% of the policyholder's contributions in the first year.
A top-up fee applies when the policyholder pays an additional single premium to buy more units, and may be a flat amount or a percentage of the top-up. Feeder or mirror funds invest entirely in an underlying fund, gaining access to its manager's expertise and economies of scale. However, policyholders indirectly bear underlying fund management, custodian or trustee, administration and any applicable subscription and redemption charges. These are additional to policy-level charges, although some may be reduced or waived depending on the insurer's relationship and bargaining power with the underlying fund manager.
Practice
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