High-net-worth individuals ( HNWIs ) are advised to exercise utmost due diligence before investing in indexed universal life ( IUL ) insurance products, which were just recently granted regulatory approval in Hong Kong.

Given their complexity and opaque pricing, IULs would require careful side-by-side comparison and stress testing against alternative products such as private placement life insurance, direct investments, or trust-based strategies, according to financial advisers.

On March 13, the Insurance Authority ( IA ) and the Hong Kong Monetary Authority ( HKMA ) allowed the sale of IULs to HNWIs in the city to expand the range of insurance products for wealth accumulation and legacy planning. Before that, their sale had been highly restricted amid regulatory concerns about their complexity, risk profile, and suitability for retail investors.

An IUL is a type of permanent life insurance that provides death benefits as part of legacy or estate planning, combined with a cash value growth feature linked to the performance of one or more market indices ( e.g., S&P 500, Hang Seng, Nasdaq 100, gold price indices, or proprietary volatility-controlled indices ).

Typically, an IUL can be a powerful wealth planning tool if the policyholder can maximize the cash value and minimize the insurance drag. HNWIs must also see to it that the charges are transparent and competitive, liquidity via loans is structured prudently, and the product is integrated into trusts and estate planning structures.

Complete information

At present, about five major Hong Kong insurers have launched IULs but only one, Transamerica Life Bermuda, has published a complete product brochure of the product on its website. 

Other insurers have so far issued press releases naming their respective IULs and publishing selected features, but do not provide complete information that would allow prospective buyers to determine how competitive their products are. Such crucial information would include internal rate of return ( IRR ) data like pars/caps, monthly charges, surrender factors, and loan spreads.

So far, based on its brochure, TLB Opus One from Transamerica Life Bermuda is the only Hong Kong IUL that provides specific mechanics ( e.g., linked indices, 0% floor, 2% cumulative guarantee, fixed account ) and benchmarks to price against.

The lack of information on the other IULs may be due to delays in the announcement of product features, which could stem from the fact that regulators are applying more stringent disclosure requirements, which in turn could be holding back the approval process, according to a financial analyst.

Regulatory guidelines

In its joint circular, the IA and HKMA stress that IULs should only be sold to professional investors ( PIs ), investors with investable assets of at least HK$8 million ( US$1.02 million ), and that insurers should expect more disclosures and Investment-Linked Assurance Schemes ( ILAS )-style processes than with a traditional UL.

The regulators cite specific guidelines ( i.e., GL15, GL26, GL28, and GL30 ) to ensure that even PIs receive robust protection, addressing past concerns such as the mis-selling of complex investment products related to Lehman Brothers, which collapsed in 2008.

This heightened vigilance increases the operational burden for intermediaries in terms of onboarding timelines. PI verification, suitability assessments, and detailed disclosures extend the sale cycle, thus potentially affecting market rollout and client acquisition, the financial analyst says.

However, the emphasis on transparency is vital as it prevents the risk of sellers overpromising returns. This stance aligns with the fair treatment principle and Hong Kong’s goal of attracting HNWIs while maintaining regulatory rigour.