People in Hong Kong need to know more about investment-linked insurance More than 40 per cent of respondents to a survey on Hong Kong's investing public say they have no idea what an investment-linked insurance policy is, according to insurer Standard Life. This low awareness of an otherwise popular investment vehicle, which is a type of life insurance that combines investment and protection, was also apparent in that while 56 per cent of respondents said they were aware of the product category, only 25 per cent recognised it by name. The remainder only recognised the product when a description of investment-linked insurance policies was read to them. Normally in investment-linked insurance a small part of the premium is used as life insurance, and the remaining larger portion is issued for fund investment. Return is linked to the performance of the funds selected and the investor has the option to switch funds without being charged any switching fees. They can usually withdraw some of the money they have paid into the policy but such a procedure typically incurs an extra fee. Alan Armitage, chief executive of Standard Life Asia, linked the low awareness level to the Hong Kong consumers' general lack of familiarity with investing in mutual funds, preferring instead to buy and sell stocks directly. 'All investment-linked insurance policies are insurance that is wrapped around a series of mutual funds. Part of the answer is the unfamiliar nature of the mutual fund industry [to a lot of people in Hong Kong], and of the relative immaturity of the mutual fund industry in Hong Kong as opposed to the understanding of stocks and shares,' Mr Armitage said. 'We are trying to position [investment-linked insurance] as [something] people can actually use to invest in the stock market on a more secure ... less volatile and aggressive basis if you invest in mutual funds, and want an insurance element associated with that product.' Confusion also tends to come from people who own other types of investment vehicle, such as mutual funds and life insurance products. Many mix investment-linked insurance with pure mutual funds. Some of the other advantages of investment-linked insurance included a diversified fund choice, the ability to switch funds for free, and the use of dollar-cost averaging in investing in the underlying funds - a practice which reduces exposure to risk associated with making a large purchase. Because investors invest a fixed amount of money on a regular basis, more shares are bought when prices are low and fewer are bought when they are high. However, he noted that such products, which usually have a long policy lifespan, tended to suit people who sought returns in the long-term, and might not be appropriate to those seeking short-term trading gains. The survey, which interviewed 503 individuals between the age of 20 and 54 who earned at least HK$15,000 a month and had held any investment products in the past year, also found that such individuals invested an average of HK$6,845 a month, with older and wealthier investors likely to invest more on a monthly basis. This group of people owned an average of 3.4 investment products. The top three most popular are, in descending order of popularity, deposits, and straight life insurance, and stocks. Investment-linked insurance came in at fourth place. Of those who owned investment-linked insurance, the average number of policies they held was 1.7.
