Family fortunes: China’s ultra rich embrace life insurance to protect wealth for future generations
Specialised policies protect fortunes from both business debts and planned inheritance tax
After a lifetime spent building their fortunes, China’s ultra rich are embracing large life-insurance policies as a way of protecting them for successive family generations.
Although China’s wealthiest people remained optimistic about the future growth of their investments, they were increasingly focused on their families’ wealth preservation, said Paul Ip, chief marketing officer of insurer AIA China.
“We see a rising demand from China’s high-net-worth individuals and families for large insurance policies, which provide better protection for their wealth,” he said.
“For Chinese businessmen, one of the advantages of a large insurance policy is that they can separate assets and debts so that their wealth can be better preserved for their next generation,” Ip said.
It is common for Chinese companies to carry debts, which mean the wealth of businessmen will be at risk of losing if their firms fail.
However, life insurance means their wealth will be protected, even if their businesses end up going into liquidation.
About 30 per cent of the respondents from AIA China’s latest study said that they needed large insurance policies, Ip said.
The life insurance study, carried out jointly by AIA China and Forbes China, surveyed 812 high-net-worth individuals with investable assets that are worth more than 10 million yuan (HK$12 million).
China’s ultra-rich families with investable assets of more than 100 million yuan were paying 1.27 million yuan per year for their life insurance policies, the study showed.
Many of them were increasingly concerned about health care, so medical protection included in such life insurance policies had attracted them to invest in insurance instead of other wealth management products, Ip said.
China’s long-proposed inheritance tax had also led the nation’s wealthiest people to invest in large insurance policies as part of their wealth succession plans, Ip said.
“It is still unclear when China’s inheritance tax will be imposed, so wealth succession via large insurance policies can help reduce [future] tax expenses,” he said.
Wang Peng, a partner at the Shenzhen-based investment consulting company Fortune Guide, said an increasing number of Chinese self-made billionaires, mostly entrepreneurs, had turned to large insurance policies as a wealth management tool as they prepared to pass on their fortunes to the second generation members of their family.
“Although the returns from insurance policy are much lower than other investment products, it can help these entrepreneurs to better protect their wealth,” Wang said.
One of the advantages of insurance plans was that they allowed policy holders to separate assets and debts, while the forthcoming inheritance tax was an additional concern, he said.
With the depreciation in the yuan in recent months, China’s rich were increasing interested in buying US dollar-denominated large insurance policies abroad, including in Hong Kong, as a way to diversify their assets, Wang said.
It was common for the rich to buy policies worth at least US$3 million, with some requiring a policy covering assets of more than US$100 million, he said.
The China Ultra High Net Wealth report, published by Hurun Research Institute and China Minsheng Bank, also showed that 30 per cent of the wealthy Chinese with assets of more than 500 million yuan, had bought large insurance policies for the sake of wealth succession.
Ping An Insurance, the mainland’s second-largest insurer, said demand for large insurance policies had grown substantially, with sales of policies that were worth more than 10 million yuan increasing by 284 per cent in 2014 compared with sales of policies in 2012.
