Medical Insurance Is a Significant Aspect of Financial Planning for High-Net-Worth Individuals in China

A new report by Manulife Hong Kong and Deloitte reveals that high-net-worth individuals (HNWIs) in China increasingly view insurance as a crucial tool for legacy and succession planning. The study, focusing on individuals with net assets of at least HKD 7.8 million, highlights that a significant majority utilize insurance in their asset portfolios, with over half specifically aiming to leverage it for wealth transfer to future generations.

Concerns about inheritance disputes and heirs' ability to manage wealth are key drivers for this trend. The report underscores the evolving role of insurance beyond risk management to encompass wealth preservation, accumulation, and distribution. Manulife has responded to these insights by establishing a dedicated Private Client Wealth Planning team and offering innovative solutions tailored to the needs of HNWIs.

Christopher Knight, iPMI Global analyst comments, “The report indicates that medical insurance is a significant aspect of the financial planning for high-net-worth individuals (HNWIs) in China. According to the report 76% of responding HNWIs own a medical insurance policy, making it the second most common form of coverage after life insurance (78%).

Furthermore, access to high-end medical protection is highlighted as a retirement priority for 65% of the HNWI respondents in the report.

These findings suggest that medical insurance plays an important role in both current financial planning and future retirement considerations for this segment of the population in China.”

Albert Mak, Chief Agency Officer of Manulife Hong Kong and Macau, "In today's evolving financial environment, HNWIs are turning to insurance as a key strategic means of achieving financial stability, effectively managing risks, and preserving their legacies."

He also emphasized that "effective legacy planning can benefit anyone who wishes to pass on their wealth to future generations."

Anthony Lau, Deloitte Private Hong Kong Leader, "Insurance has evolved from a risk management product to a legacy planning tool highly preferred by our HNWI clients. It mimics some key features of will, family trust, and limited power of attorney, making insurance one of the most accessible legacy planning components."

Key Themes and Important from the Report

1. Insurance as a Cornerstone of HNWI Financial Planning:

High Adoption Rate: A substantial 70% of HNWIs in China have integrated insurance into their asset portfolios.

Significant Asset Allocation: 30% of these individuals allocate 11% or more of their assets to insurance products, demonstrating its importance in their overall financial strategy.

Beyond Risk Management: The report emphasizes the shift in perception of insurance from a pure risk management tool to a strategic asset for legacy planning. As Anthony Lau, Deloitte Private Hong Kong Leader, states, "Insurance has evolved from a risk management product to a legacy planning tool highly preferred by our HNWI clients."

2. The Primacy of Legacy and Succession Planning:

Key Motivation: Over half (57%) of respondents intend to use insurance to facilitate a smoother transfer of wealth to future generations.

Preventing Inheritance Disputes: A significant 64% of those prioritizing asset distribution in their desired manner identified this as their main anticipated outcome of asset inheritance. Furthermore, 67% acknowledge that designating beneficiaries through insurance can help mitigate conflicts in wealth distribution.

Addressing Key Concerns: The report highlights specific concerns related to legacy succession, with respondents ranking the following as their primary worries:

Disputes among heirs (52%): This underscores the desire for clear and legally sound mechanisms for wealth transfer.

Heirs' ability to manage wealth (43%): This suggests HNWIs are seeking solutions that can provide a degree of control or structure for inherited assets.

Risk of wealth loss or depreciation (43%): Insurance products, particularly those with wealth accumulation components, can address this concern.

3. Popular Insurance Coverage Types Among HNWIs:

Life Insurance Leading: Life insurance is the most common form of coverage, owned by nearly 78% of responding HNWIs.

Medical and Savings Insurance Also Prevalent: Medical insurance (76%) and savings insurance (60%) are also widely held, reflecting a holistic approach to financial well-being and long-term growth.

4. The Role of Insurance in Emulating Other Legacy Planning Tools:

Anthony Lau highlights the versatility of insurance, noting, "It mimics some key features of will, family trust, and limited power of attorney, making insurance one of the most accessible legacy planning components." This accessibility and relative ease of implementation make it an attractive option.

5. Potential Tax Advantages:

The report mentions that "in certain jurisdictions, tax authorities offer preferential tax treatment such as tax exemption, deferral and deductions for insurance products, as outlined in their tax law." This can further enhance the appeal of insurance for wealth transfer.

6. Manulife's Response and Holistic Approach:

Dedicated Private Client Wealth Planning Team: Recognizing the unique needs of HNWIs, Manulife has established a specialized team focused on wealth preservation, accumulation, and transfer.

Network of Professional Service Providers: Manulife can connect clients with experts for tailored insights and guidance, demonstrating a commitment to a holistic approach.

Tailored Product Offerings: Manulife's diverse range of products, including Genesis, Whole-In-One-Prime 3, and Future Assure, cater to various customer segments, including HNWIs, with specific features and administrative arrangements.

Innovative Legacy Choice Service: Manulife offers a "market-first Legacy Choice service" within designated insurance products, allowing policy transfer upon the policyholder's passing or when the successor reaches a specified age.

Albert Mak, Chief Agency Officer of Manulife Hong Kong and Macau, emphasizes that "The combination of legacy planning expertise, leading specialist advice and innovative features is essential to delivering bespoke and holistic solutions that effectively address the individual needs of HNWIs."

7. Evolving Attitudes Towards Legacy Planning:

Anthony Lau notes that "Families are becoming more open-minded about starting legacy planning at a younger age, having recognized the benefits of facilitating the smooth transition of wealth and maintaining harmonious family relationships."

8. Retirement Priorities of HNWIs:

Beyond legacy planning, the report also touched on retirement priorities:

• Quality of life and associated expenses (86%).
• Living environment, including housing and potential overseas relocation (69%).
• Access to high-end medical protection (65%).

About the Study:

The report was jointly published by Manulife and Deloitte.

It was developed based on proprietary research, interviews with HNWIs and relevant stakeholders, and analysis of qualitative and quantitative data.

Customer research was conducted in China.

Frequently Asked Questions

1. Why are a significant majority of High-Net-Worth Individuals (HNWIs) in China considering insurance as essential for legacy and succession planning?

A substantial 67% of HNWIs in China recognize that utilizing insurance, particularly life insurance, allows for the clear designation of beneficiaries, which can significantly reduce the potential for inheritance disputes and ensure their assets are distributed according to their wishes. This is a primary concern for 64% of those focused on asset inheritance. Furthermore, insurance is increasingly seen as a stable and strategic tool for wealth preservation, accumulation, and efficient transfer to future generations in a potentially evolving financial environment.

2. What percentage of HNWIs in China currently integrate insurance into their asset portfolios, and what portion allocate a significant amount to it?

The report indicates that a strong majority, 70%, of HNWIs in China have already incorporated insurance into their asset portfolios. Notably, a significant 30% of these individuals allocate 11% or more of their total assets to insurance products, highlighting the considerable role insurance plays in their overall financial planning strategies.

3. What are the primary types of insurance policies held by HNWIs in China, and what is the leading motivation for leveraging insurance?

Life insurance is the most common form of coverage among HNWIs in China, held by nearly 78% of respondents. Medical insurance (76%) and savings insurance (60%) are also prevalent. The leading motivation for leveraging insurance, cited by 57% of respondents, is to facilitate a smoother and more controlled transfer of wealth to their heirs, ensuring their legacy is passed on as intended.

4. Beyond facilitating wealth transfer, what other concerns related to legacy succession are prominent among HNWIs in China?

Besides preventing inheritance disputes, HNWIs in China harbour concerns about their heirs' ability to manage the inherited wealth effectively (43%) and the risk of wealth loss or depreciation during the succession process (also 43%). This underscores the need for comprehensive legacy planning that extends beyond mere asset transfer to include considerations for the long-term security and management of that wealth.

5. How does insurance act as an accessible legacy planning component, similar to other tools like wills and trusts?

Insurance policies offer key features that mirror aspects of traditional legacy planning tools. Like a will, insurance allows for the direct designation of beneficiaries. Similar to some functions of a family trust, it can provide a mechanism for the controlled distribution of assets. The report suggests that insurance is often perceived as more readily accessible and potentially offering tax advantages in certain jurisdictions, making it a preferred component in holistic legacy plans.

6. What are some of the retirement priorities identified by HNWIs in China that align with their interest in legacy planning?

While focused on legacy, the retirement priorities of HNWIs also reflect a desire for long-term well-being and security that complements their planning for future generations. A high percentage prioritize quality of life and associated expenses (86%), their living environment, including potential overseas relocation (69%), and access to high-end medical protection (65%). These priorities suggest a holistic view of financial planning that encompasses both their own future and that of their descendants.

7. How are financial institutions like Manulife Hong Kong adapting to meet the specific legacy and wealth planning needs of HNWIs in China?

Recognizing the unique needs of HNWIs, Manulife Hong Kong has established a dedicated Private Client Wealth Planning team focused on wealth preservation, accumulation, and intergenerational transfer, while also managing unforeseen risks. They also offer a network of specialized professional service providers to offer tailored advice. Furthermore, they have introduced innovative features like the "Legacy Choice" service in certain insurance products, allowing for the future transfer of the policy to a designated beneficiary on a specific date or upon reaching a certain age.

8. What role do partnerships, like the one between Manulife and Deloitte, play in providing insights and solutions for HNWIs regarding legacy and succession planning?

The collaboration between Manulife, with its expertise in insurance and financial solutions, and Deloitte, with its consulting and wealth management insights, allows for the creation of comprehensive reports that offer valuable insights into the preferences and considerations of HNWIs. This partnership combines financial product knowledge with expert advisory services, leading to a better understanding of the challenges faced by this segment and the development of more effective and tailored legacy and succession planning solutions.

Conclusion

iPMI Global Analyst Christopher Knight concludes, “The Manulife and Deloitte report provides valuable insights into the financial planning preferences of HNWIs in China, particularly regarding legacy and succession planning. The findings clearly indicate a strong and growing reliance on insurance solutions to address concerns related to wealth transfer, inheritance disputes, and the long-term management of assets. This trend underscores the evolving role of insurance and highlights the importance for financial institutions to develop tailored products and services, as exemplified by Manulife's strategic response.”