I believe that friends who have been in contact with Hong Kong insurance must have seen that there are reversionary bonuses and cash dividends on the policy, these two terms, and sometimes they will wonder, what is the difference between these two, which one is better for the policyholder? First of all, we need to understand what is the bonus?
After the customer pays the premium to the insurance company, the company will use the rest of the premium as an investment in addition to the insurance reserve and the company's expenses. The profits generated by the investment will be distributed to the customers who purchase participating (i.e., savings) insurance, and this part of the money is called dividends.
Here is an emphatic point to emphasizeThe dividend payout rate that we see before applying for insurance is estimated by the insurance company based on a variety of circumstances such as investment returns, compensation, surrenders and expenses。This means that he will move according to the market investment**.
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Reversionary bonuses and cash bonuses
Cash Bonus: As the name suggests, this type of bonus is paid out in cash, which means that for every dollar paid out on the policy, you will receive the amount of cash you will receive in the future. This way is like buying ** to pay dividends,Once the cash bonus is paid, the money is yours, which means you can withdraw it at any time.
If you are not in a hurry to withdraw it, the cash dividend will be placed in a bonus accumulation account and will continue to accumulate at a certain interest rate every year.
Reversionary bonus: It is the name of an American-style policy, and is also known as a "reversionary bonus" in a British policy. This type of dividend is similar to the company's bonus shares, in which the shareholder needs to cash out the bonus shares according to the current stock price. In other words,Your actual profit depends entirely on what you sell**, and until then it has nothing to do with you whether the stock price is high or low.
For this type of dividend, the dividend is usually paid out at the death of the insured or at some time in the future. If you wish to cash out early, you will need to multiply it by the realisation discount rate and distribute it in cash, which is determined according to the tenor of the policy and the investment performance of the year.
It can be seen from this that the reversionary bonus is to continue to be managed by the insurance company, and the dividend announced by the insurance company is only a number, and the specific value will only be known when it is actually received.
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The difference between sum assured and cash value
As a simple example, let's say a savings policy is made up of 1,000 shares** and pays dividends** at the end of the year.
A cash dividend is equivalent to a cash payout (e.g. $100 in cash);
Reversionary bonus is equivalent to a distribution** (e.g. 10 shares**, which would equate to a total of 1,010 shares** in the policy, resulting in a higher sum insured).
The specific calculation formula is as follows:
The discount rate here will change with the change of "time" and "market investment environment". Generally speaking, the earlier the dividend is withdrawn, the lower the discount rate (e.g. 80%), the greater the discount loss, and the less dividends can be withdrawn. As time progresses, the realisation discount rate will gradually approach 1, and there will be no further losses when the bonus is withdrawn. Therefore, if a whole life critical illness insurance policy is a British dividend, it will generally not involve a discount loss, unless the policy is surrendered in the middle of the policy.
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Interest-earning and rollover methods
There are generally two types of dividend investment strategies.
The par value of the benefit payable under the Reversionary Bonus Policy will be retained as an asset in the "Participating Policy Assets" and the par value of the benefit will be repaid if the assets are reinvested in a profit. The non-guaranteed factors involved in the investment strategy behind the reversionary bonus are relatively high, and insurers have more room to invest the policy value in more volatile assets, so the potential risk is relatively large and the potential return is relatively volatile, but in the long run, the total expected return is relatively high.
Cash dividend policies are another scenario, where the company will choose to invest the policy value in more stable assets, so the potential risk is relatively small, but the corresponding long-term expected return will be relatively small.
Therefore, if you don't know how to invest and want to be able to get higher returns and protection from long-term investments, and have a high risk tolerance, then you may be inclined to choose a reversionary bonus policy, which has a relatively large snowball effect. If the opposite is the case, you may consider opting for a cash participating policy.
Final ChapterHow exactly do you choose insurance? In general, the two types of policy dividends have their own advantages, and since their emergence in the 90s, they have played their own characteristics in different years. Therefore, the most important thing is to choose according to your own needs and circumstances. I believe that saving is used to meet our needs at different stages of life, such as raising children and providing for the elderly. SoIt is recommended that you first clarify your medium and long-term goals, and then consider different wealth management products as appropriate. Of course, before you think about saving, you must first do a good job of basic protection for yourself and your family, after all, we can decide when to have children or when to retire, but there is no way to decide when to get sick.