This is the value accumulated in a policy account. It is not necessarily the same as the surrender value. For example, some policies may have fees and charges deducted from the account value upon surrender, so the final amount received may be lower than the account value. For investment-linked assurance scheme, the account value of the policy varies with the investment performance of the funds or assets selected by the policyholders.

This is a type of non-guaranteed policy dividend. Insurers declare and pay out the dividend annually according to the policy terms. In general, the amount is fixed once declared. Policyholders may either withdraw the dividend or leave it with the insurer to accumulate non-guaranteed interest.

This is the person(s) who will receive the money from the insurer if the relevant conditions under the policy have been fulfilled. Subject to the policy terms, a policyholder of a single policy may assign more than one beneficiary and allocate a percentage of the benefits to each beneficiary.

According to the “Guideline on Benefit Illustrations for Long Term Insurance Policies” (GL 28), insurers should provide potential and existing policyholders of specific types of life insurance policies with a benefit illustration showing the projected surrender value and death benefit at the point of sale and when the policy is in force.

This is the amount of money that the policyholder will receive upon policy surrender.

A “cooling-off period” applies to all individual life insurance policies sold in Hong Kong, to allow policyholders to review the terms and conditions of the policy after the purchase. During the cooling-off period, the policyholder has the right to cancel the policy. Insurers should offer a full refund of the insurance premium paid or an amount less a “market value adjustment”, if applicable . The cooling-off period is 21 calendar days immediately following the day of delivery of the policy, or the Cooling-off Notice to the policyholder or the policyholder’s nominated representative (whichever is earlier).

This is the amount of loss the policyholder will bear if one of the insured events happens. The policyholder can claim only the amount that exceeds the deductible / excess.

The “exclusion” clauses operate to carve out certain situations from the insurance coverage under an insurance policy. Insurers will not pay for any losses arising from the excluded items. Subject to the policy terms, “exclusion” clauses may generally apply in respect of the whole insurance policy or only to specific sections of the policy. There are different types of exclusions for different types of insurance policies. For example, self-inflicted injury and pregnancy are common excluded items in medical insurance policies, while unlawful purpose is usually excluded from a motor insurance policy.

FNA applies to the sale of life insurance products (excluding exempted products). Life insurance policies are generally long term in nature and may thus lock up the liquidity of policyholders. Therefore, it is important for insurers and insurance intermediaries to assess a potential policyholder’s needs, financial situation, ability and willingness to pay the premiums, etc., before any recommendation is made in respect of a suitable life insurance policy, and they must ensure that the recommendation is based on that assessment. If potential policyholders refuses to disclose information during the FNA process, the intermediary cannot recommend any insurance product to them.

The fulfillment ratio may serve as a useful reference of past performance of the distribution of the non-guaranteed benefits of a product, but it is by no means the sole indicator of the future declaration of the insurance product. In simple terms, the fulfillment ratio is the aggregate actual accumulated non-guaranteed benefits against the illustrated aggregate amounts for all relevant policies at the point of sale. A ratio close to 100% means the insurer has come close to achieving its projected non-guaranteed benefits. If the fulfillment ratio is higher than 100%, it means the actual payout was higher than the illustrated amount at the point of sale, and vice versa. Refer to the Fulfillment Ratio webpage on the Insurance Authority website to learn more about how to calculate the fulfilment ratio and points to note when interpreting the figures.

Life insurance policies normally offer a grace period for premium payment. The duration and operation of the grace period varies across different policies. In general, the policy will remain in force during the grace period. If the premium is paid during the grace period, the coverage will not be affected.

Some insurance policies use the term ‘guaranteed renewal’, which means the insurer guarantees policy renewal regardless of the health condition and claims record of the insured person, according to the policy terms. But guaranteed renewal does not mean the terms and conditions of the renewed policy will remain unchanged. The insurer has the right to adjust the premium level depending on the age of the insured person, inflation and other factors. If a product is no longer available in the market, the insurer will not accept a renewal for the product concerned.

An individual can buy insurance for a person only if there are “insurable interests” in their relationship. Insurable interests exist if the individual would have a financial loss if the covered events happened to the insured person. To prevent moral hazard, insurable interest is often related to relationships by law, blood or possession.

Insurance agents are appointed by insurers to promote, advise on and arrange insurance policies on behalf of the insurers they represent. In general, they can be appointed by a maximum of four insurers, of which no more than two can be insurers authorized to carry on long term business. They are often remunerated by the insurers they represent by way of commission.

Insurance brokers are not appointed by insurers; they act for policyholders. They provide policyholders with suitable insurance advice and represent them in the course of dealing with matters relating to insurance policies, including the application procedure, negotiations with insurers, the arrangement of policies and claim applications. They may approach any insurers in the market without limitation to the numbers of insurers to source the most suitable insurance products for policyholders. Insurance brokers normally receive a commission from insurers as remuneration, or they may charge a service fee to the policyholders.

Insurance intermediaries serve on the frontline of the insurance industry and form an important link between policyholders and insurers. They are engaged mainly in selling insurance products, arranging insurance contracts for policyholders, providing information and advice on insurance matters, and assisting policyholders with claim applications, if necessary. Insurance intermediaries are generally divided into two categories: insurance agents and insurance brokers. Please refer to the separate explanations of “insurance agents” and “insurance brokers”.

The IRR is a way to calculate future cash flow at an annualized rate. In general, a higher IRR means a better return.

A person looking to buy an insurance policy has a duty to disclose all “material facts” about the risks the person wants to insure. The insurer can then reasonably assess the risks to determine the premium level and whether or not it will accept the application. The definition of “material facts” amongst policies may vary. For example, a medical or critical illness insurance policy normally require applicants to declare their health condition and medical history. The insurer may reject a claim or even declare a policy invalid on the ground of non-disclosure of material facts.

“Medically necessary” is a common principle used in medical insurance policies. Insurers may reject a claim if the condition is not considered “medically necessary”. The definition of “medically necessary” varies amongst different policies, but most insurers share a few common grounds, including the urgency of the condition, the urgency of hospitalisation, the necessity for in-patient medication or surgery, the feasibility or difficulty of providing outpatient treatment, and whether the hospitalisation is solely for diagnostic scanning and does not involve administering medication.

The account value of universal life insurance can earn interest at the crediting interest rate declared by the insurer, subject to the respective policy terms. A minimum guaranteed crediting interest rate may apply to some polices, which means the interest rate floor will be the guaranteed interest rate.

An MPG exists when the breadwinner of a family passes away without enough assets to address the protection needs of the dependents, i.e. to maintain the current living standard of the remaining family members.

This shows the general probability of an insured person’s death. The insurance industry normally uses a mortality table to show the rate of death of different age groups and determine the premium level.

Some critical insurance products can accommodate multiple claims by the insured person. If the insured person is diagnosed with one of the prescribed illness and receives a claim payment, the policy is still valid, so if the insured person is affected by the same illness or diagnosed with another prescribed illness after a specific period, the insured person can file another claim with the insurer, according to the policy terms.

Some personal property insurance (e.g. home insurance and travel insurance) may work on a “New for Old” basis, which means that claim settlement is not subject to deduction for wear and tear, depreciation, etc. The insurer will replace the damaged or lost items with a new one of similar value, but the quality of the new item will not better than the damaged or lost one. In other words, the amount of claim settlement will not be higher than the replacement value of the damaged or lost item.

Most motor insurance, and some medical insurance or home insurance policies provide a NCD or NCB on the renewal premium if the policyholder does not make a claim during a prescribed period, subject to a maximum limit. Generally, the longer the claim-free period, the higher the NCD or NCB.

This is a bonus or dividend distributed to policyholders. It is affected by the insurers’ investment strategy and performance, claim experience, operational expenses, etc. The final payout may be higher or lower than the projected payout illustrated in the benefit illustration. Under extreme circumstances, the amount of non-guaranteed benefits may be zero.

This is commonly featured in long term insurance products, such as whole life insurance, endowment insurance or critical illness insurance products that have a savings element. It provides policyholders with life protection, as well as non-guaranteed benefits by distributing dividends or bonuses, which allow policyholders to share the product profits. Refer to the Understanding a Participating Policy webpage on the Insurance Authority website to learn more about how to choose a participating policy.

This is a way that insurers share their profits with policyholders of participating policies. In general, policy dividends are non-guaranteed. Depending on different policy terms, there are different types of policy dividends or bonuses, such as an annual dividend, reversionary bonus, or terminal dividend or bonus. Please refer to the separate explanations of these three types of dividends.

Most medical insurance policies define “pre-existing conditions” as any injury, illness, condition or symptom presented prior to the commencement of the policy, whether or not it is congenital or acquired, and whether or not the condition has been diagnosed. Nonetheless, coverage under the Voluntary Health Insurance Scheme (VHIS) extends to any “unknown pre-existing conditions”, which refers to any health conditions which exist but the insured persons are unaware of when they apply for the insurance coverage. For details, please visit the VHIS website.

This normally applies to an investment-linked assurance scheme (ILAS) or universal life insurance. Policyholders are allowed to suspend premium payments temporarily after a specific period from the commencement of the policy, as long as the account value covers all related fees and charges. However, a premium holiday is not a permanent suspension of payment. Fees and charges are still applicable during the holiday and are deducted from the account value.

A Protection Linked Plan (PLP) is a category of Investment-Linked Assurance Scheme (ILAS) with an embedded high level of insurance protection. It features a simple and transparent fee structure and confined fund choices. If the insured person passes away before reaching the age of 65, the minimum death benefits is not less than 150% of the total premiums payable. Like other types of ILAS, the account value of a PLP varies with the investment performance of the investment options chosen by the policyholders. To learn about the features and risks of an ILAS, refer to the Life Insurance webpage on this website.

“Reasonable and customary charges” is one of the principles insurers follow when handling claims. In general, insurers make reference to relevant information from private hospitals and healthcare facilities, as well as claims statistics and other sources, when determining the amount of a claims payment. In other words, if the claimable amount exceeds a “reasonable and customary charge”, the insurer may not offer full reimbursement of the covered items, and the insured person will have to pay the shortfall.

This applies only to a participating policy. The amount is non-guaranteed. It is a bonus of which the face value is a permanent addition to the sum assured in the policy and payable upon death. The cash value is paid at a discount upon policy termination that did not result from the death of the insured person.

There is normally a maximum limit for each medical benefit item for traditional medical insurance products. Some plans may offer supplementary major medical benefits that allow the insured person to claim a prescribed percentage of the relevant expenses in excess of the maximum payable benefits.

This is the amount of money paid by the insurer if the relevant conditions under the policy have been fulfilled. For example, the sum assured for a life insurance policy is normally the amount of death benefits.

This applies only to a participating policy. The amount is non-guaranteed. It is a one-off entitlement and payable upon policy termination, such as death of the insured, policy surrender or maturity. The amount may change for each declaration. The actual amount is determined only when it is payable.

This insures the policyholders for liability for accidental death or bodily injury of a third party or accidental loss or damage to a third-party property, covering both indemnity and legal expenses. Third party liability coverage for death and injury is a statutory requirement for motor insurance. Policyholders can also choose to obtain cover on third-party property if needed. Some home insurance policies provide all the above third party liability insurance cover.

This is the process of analyzing the risk of an insurance application. Insurers evaluate the risk of the insured persons according to their conditions to determine whether to accept the application and how to set out the policy terms, including the premium. The practice may vary among different insurers.

“Utmost good faith” is an important principle in insurance contracts. Under this principle, an applicant must actively and honestly disclose all critical information to the insurer, whether or not the insurer has asked for it. The insurer can then reasonably assess the risk based on the disclosed information. The insurer may reject a claim or even declare the policy invalid on the ground of non-disclosure of material facts.

This is a prescribed period after the commencement of a policy. A claim can be filed with the insurer only for an insured event that happens after the waiting period. Definitions of “waiting period” vary amongst different policies. However, most medical and critical illness insurance policies have this clause to avoid incurring liability for any claims arising from a disease contracted before the application for the policy. Any diseases or symptoms occurring during the waiting period are excluded from the coverage.