Common misconceptions about Hong Kong insurance: ten misunderstandings about returns, regulation, claims and tax

Common misconceptions about Hong Kong insurance are claims that circulate in discussions of Hong Kong policies but conflict with Insurance Authority (IA) rules, government documents or policy terms. Most come from treating an illustration as a promise, assuming the rules of one place apply in both, or mistaking "it can be done" for "it costs nothing". This page groups them into five areas (returns and illustrations, regulation and protection, signing and cross-border matters, tax and reporting, and borrowing and choosing cover) and gives a conclusion and the evidence for each.

Jurisdiction covered: Hong Kong; items involving mainland foreign exchange and tax are marked "Mainland China". For tax questions, seek professional advice in your own jurisdiction.

Returns and illustrations

Misconception 1: the figures in the benefit illustration are the money you will receive

Conclusion: no. Annual bonuses, reversionary bonuses and terminal bonuses in a benefit illustration are all non-guaranteed benefits. Evidence: the IA consumer education website states that for participating products "The final payout may be higher or lower than the projected payout illustrated in the benefit illustration", and notes that "a product with a higher proportion of guaranteed benefits means a higher level of protection". When reading a benefit illustration, look first at the guaranteed cash value and guaranteed death benefit, then at the non-guaranteed part. See how participating savings policies work.

Misconception 2: a 100% fulfilment ratio means a good product, and a low ratio means you will lose money

Conclusion: neither holds. Evidence: the IA's GL16 interpretation notes define the fulfilment ratio as the ratio of declared non-guaranteed bonuses to the amounts illustrated under the best-estimate scenario at the point of sale, and require a statement that past bonuses are "not an indicator of future declaration". The IFEC adds that bonuses are small in a policy's early years and more easily come close to 100%, while later years better reflect long-term performance. A ratio below 100% only means bonuses were lower than illustrated; the guaranteed part is unaffected, but early surrender can still mean a loss. How to read the ratio is explained on how to read fulfilment ratios.

Misconception 3: illustration caps will push down actual bonuses

Conclusion: they have no direct effect. Evidence: according to Milliman's summary of IA practice notes, from 1 July 2025 the customer internal rate of return shown in point-of-sale benefit illustrations is capped at 6.0% a year for HKD policies and 6.5% a year for non-HKD policies, applying to all scenarios, "without directly affecting the underlying investment returns". The cap means an illustration may not exceed that level; it does not mean that level is achievable. Actual bonuses still depend on the investment and experience of the participating fund. A comparison of Hong Kong and Singapore illustration rules is on the sister site wholelife.hk.

Regulation and protection

Misconception 4: Hong Kong policies are backed by the government, so you will be paid in full even if the insurer fails

Conclusion: Hong Kong currently has no Policy Holders' Protection Scheme covering life policies. Evidence: the PPS went to public consultation from 30 December 2022 to 31 March 2023, and the consultation conclusions were published on 28 December 2023. The Financial Services and the Treasury Bureau website (accessed October 2026) says preparatory work and drafting of the legislative amendments are still under way, with no timetable announced. The consultation offered compensation cap options of HK$1 million, HK$2 million or HK$4 million; the final design has not been decided. At present, protection for policyholders comes mainly from the IA's risk-based capital regime (implemented on 1 July 2024) and GL34 governance of participating funds. Legislative Council papers record that the three insolvencies since the late 1990s all involved small and medium-sized general insurers. See claims, complaints and the PPS.

Signing and cross-border matters

Misconception 5: a policy signed on the mainland or remotely is just as valid

Conclusion: it is not the same. Evidence: the IA's tips on buying insurance state that "The entire sales process … must take place in Hong Kong" and "You must sign all the relevant documents in person in Hong Kong". PRC Resident Identity Card holders must also sign the IFS-MP, confirming they understand the factors and risks to consider when taking out a long term policy in Hong Kong. According to media reports, the former China Insurance Regulatory Commission's 2016 risk warning also described Hong Kong policies sold on the mainland as "underground policies". If a dispute arises under such an arrangement, the policyholder may be at a disadvantage. The rules are summarised on mainland visitors buying insurance in Hong Kong.

Misconception 6: Hong Kong policies need not be reported and will not be exchanged with the mainland

Conclusion: cash value insurance contracts fall within Hong Kong CRS reporting. Evidence: the Inland Revenue Department's AEOI FAQ lists "cash value insurance contracts and annuity contracts" as financial accounts; Mainland China has been a reportable jurisdiction since 1 July 2017, with first reporting and exchange in 2018 (IRD list of reportable jurisdictions). On the mainland side (Mainland China), MOF and STA Announcement No. 3 of 2020 requires resident individuals to report overseas income between 1 March and 30 June of the following year. There is no specific written rule on how bonuses and surrender gains from overseas policies are characterised; the competent tax authority's position should be followed, rather than assuming that "no reporting is required".

Borrowing and financing

Misconception 7: a policy loan is "free money"

Conclusion: policy loans carry interest, and the rate is set by the insurer and can change. Evidence: taking the October 2026 public page of one large insurer as an example, the policy loan rate is 8% a year (subject to change); the same insurer warns that the policy will terminate if the loan and interest exceed the loanable amount, and that the amount received may be far below the premiums paid. Outstanding loans and interest are also deducted from the surrender value or death benefit. The mechanism and a hypothetical example are on policy loans and financing.

Misconception 8: premium financing reliably amplifies returns

Conclusion: financing amplifies volatility, not certainty. Evidence: the HKMA's consumer guidance warns that an "interest rate hike may cause financial loss" and that non-guaranteed benefits "may be lower than that shown in the benefit illustration". The IA's supervisory standards require affordability assessments and checks for excessive leverage: if early repayment could only come from the surrender value, there is a risk of excessive leverage. Rising interest rates, lower bonuses, exchange rate movements and early recall by the bank can all happen at the same time.

Choosing cover and surrendering

Misconception 9: with medical insurance you do not need critical illness insurance (or vice versa)

Conclusion: the two solve different problems. Medical insurance pays according to actual medical expenses and covers hospital and surgery costs. Critical illness insurance pays a lump sum once a covered illness is diagnosed and conditions such as the survival period are met, to make up for lost income and recovery costs. VHIS Certified Plans guarantee renewal up to age 100 with no lifetime benefit limit (Flexi Plans have their own terms), but carry annual benefit limits; critical illness policies generally have a 60 to 90-day waiting period. Whether you need both depends on your household income structure and existing cover. See critical illness and medical insurance.

Misconception 10: after the cooling-off period, you can surrender for a full refund at any time

Conclusion: you cannot. Evidence: the cooling-off period is 21 calendar days from delivery of the policy or issue of the cooling-off notice, whichever is earlier, and premiums and levy paid are refunded only if the policy is cancelled within this period. After the cooling-off period, surrendering returns only the surrender value at that time. The IA notes for whole life insurance that "Early surrender of the policy will result in a significant financial loss, with policyholders getting far less than they paid". Before buying, make sure this money will not be needed for the long term.

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