1. Some ILAS bear names such as savings, savings account and saving plan, etc. If I subscribe to one of these products, is it an insurance plan or an investment/deposit product?
Despite adopting these names, when you subscribe to an ILAS, you are only entering into an insurance contract with the insurance company. You should also note that, even if the ILAS has an underlying investment option, you - the policy holder - do not have ownership of the invested assets. Such assets are kept and owned by the insurance company which offers the ILAS. In case the insurance company becomes insolvent, you will only have a contractual claim and may lose the entire value of your investment. In addition, even if an ILAS bears the name of savings, savings account or savings plan, it is i) neither a bank deposit nor a savings account; ii) not a capital guaranteed / protected product; and iii) not a protected deposit for the purpose of the Deposit Protection Scheme. Prominent disclosures to these effects are already included in the appropriate ILAS.
When you consider whether an ILAS suits your needs, you should read its offering documents, including the Product Key Facts Statement (KFS) and its Important Facts Statement (IFS) to know more about its nature, features, fees and risks, etc., before making your decision. If you have any questions about the product or its offering documents (including the Product KFS) and IFS, ask the sales intermediaries to explain. And if you are still in doubt, seek independent advice from other professionals.
2. I have heard of a "Contribution/Premium Holiday" which enables me to stop contributing after a period of time. How does it work?
Some insurance companies may allow you to suspend your premium payments temporarily for your ILAS often after a specific period of time by applying for a "contribution/premium holiday". You should note that "contribution/premium holiday", if available under your ILAS, is not a permanent suspension of payment and your ILAS is typically still subject to ongoing fees and charges.
Furthermore, you may be required to resume your contributions during your "contribution/premium holiday" if the value of your policy account drops below a minimum level set by the insurance company or becomes insufficient to cover all relevant fees and charges under your ILAS, depending on the terms of your ILAS. This may happen, for instance, if the underlying investments of your ILAS suddenly drop in value. If you fail to pay premiums as and when required by your insurance company, your ILAS may be terminated early (i.e. before maturity) and you may be subject to a surrender penalty.
3. There is an investment option with a guarantee feature in my ILAS. Is it the same as an ordinary guaranteed fund?
Some insurance companies offer an investment option that seeks to preserve your capital or even provide you with a guaranteed return if you hold your investment until maturity. Usually, an investment option with such a guarantee feature has as its underlying fund a guaranteed fund. As such, the guarantee of the underlying guaranteed fund would also have implications on whether your ILAS is able to deliver the guarantee. In this case, in addition to the credit risk of the insurance company, you are subject to the credit risk of the guarantor of the underlying fund, as any inability on the part of the guarantor to deliver its guarantee will result in you not obtaining guarantee on your investment option.
Find out information regarding the underlying guaranteed fund from the offering documents of the ILAS and the underlying fund, and verify whether any party would be responsible for delivering the guarantee under your ILAS. Also, pay attention to the conditions that you have to satisfy in order to qualify for the guaranteed amount. You will not be able to enjoy the guarantee if you withdraw from your ILAS before maturity.
4. There is an investment option available under my ILAS with dividend distribution / payout on a regular basis. How does it work? How will such distribution / payout impact on my ILAS policy?
Some ILAS products may offer an investment option that distributes dividends on a regular basis. Such type of investment option will typically link to the distribution share class of an underlying/reference fund which may make distributions on a regular basis. Please note however that in many cases the investment option and the corresponding underlying/reference fund will not guarantee the dividend distribution, the frequency of distribution, and the amount of dividend payouts. Distribution by the underlying/reference fund will result in an immediate reduction of the net asset value per share of the underlying/reference fund after the distribution, which will in turn affect the price of the investment option. As such, it will reduce the value of the ILAS policy and therefore any death benefit payable may be reduced. You should read the offering documents of the ILAS products and the underlying/reference funds for details (including their investment objectives and policies, risk factors and charges, etc.).
5. Will I be entitled to recover my share of the underlying assets held in an ILAS if the insurance company offering that ILAS goes into insolvency?
An ILAS is an insurance policy and you are an unsecured creditor if the insurance company becomes insolvent. The premium paid by you under an ILAS and any investment made by the insurance company in respect of the ILAS will become and remain the assets of the insurance company. Therefore, the underlying assets of an ILAS are not owned by you. Instead, they are owned by the insurance company that offers the ILAS. Hence, you may not be able to recover your share of the underlying assets if the insurance company becomes insolvent and/or does not have sufficient assets to cover the obligations (eg due to other senior/secured creditors).
6. What is a cooling-off period?
The "cooling-off" period is a period during which you may cancel the ILAS and recover your original investments (subject to market value adjustment) within the earlier of 21 days after the delivery of the ILAS or issuance of a notice to you or your representative. Such notice should inform you of the availability of the ILAS and expiry date of the cooling-off period.
For reference, please review the "cooling-off" initiative issued by Hong Kong Federation of Insurers from time to time.
If you wish to withdraw from an ILAS during the "cooling-off" period, please be reminded to serve a written notice to the ILAS issuer.
7. How can I know the remuneration that the intermediary will obtain by selling the ILAS to me?
Intermediaries selling ILAS products are required to disclose at the point-of-sale the remuneration receivable by the intermediaries. This is to enhance transparency and allow customers to consider whether there exists any potential conflicts of interests and whether the remuneration would affect the intermediaries’ recommendation of the ILAS product concerned.
The remuneration should cover all monetary and non-monetary remuneration to the intermediary attributable to the sale of the ILAS product, including the basic commission, renewal commissions, trailers, facilitation fees, referral fees, production bonuses, persistency incentives etc.
It is a compulsory upfront written disclosure in the IFS and uses “all-year-average” calculation, ie dividing the total payment to the intermediary attributable to the concerned ILAS policy by the total premium payable over the whole premium payment term (please refer to the below example).
Example of "all-year-average" calculation:
Product A (10-year regular premium ILAS)
Premium: HK$100,000 per annum
Total Premiums: HK$100,000 x 10 = HK$1,000,000
First Year Commission: 15% of first year premium (HK$100,000 x 15% = HK$15,000)
Renewal Commission: 3% of annual premium for the second to sixth years (HK$100,000 x 3% x 5 = HK$15,000)
Total Commissions: HK$15,000 + HK$15,000 = HK$30,000
All-year-average: HK$30,000 ÷ HK$1,000,000 = 3% (In the IFS, it is presented as HK$3 per HK$100 of premium.)