In March 2025, the Hong Kong Monetary Authority (HKMA) and the Hong Kong Insurance Authority (HKIA) jointly issued a circular that established Indexed Universal Life (IUL) insurance as a new product category, classifying it under Category C of long-term business. This decision marks a significant recognition of innovative insurance products in the financial market, offering consumers more flexible protection and investment options.

Indexed Universal Life (IUL) insurance is a complex financial tool that combines life insurance protection with investment components. Unlike traditional life insurance policies, IUL allows policyholders to grow their cash value based on the performance of specific market indices, such as the S&P 500, while also providing guaranteed death benefits.

To illustrate how IUL works, consider a specific example. Assume an IUL product is linked to the S&P 500 index with a minimum interest rate of 0% and a cap rate of 10%. Here’s how it operates:

1. If the S&P 500 index returns -5%, the IUL policy will yield 0%, ensuring no loss of principal.
2. If the S&P 500 index gains 15%, the IUL account will credit a maximum of 10% due to the cap.
3. If the S&P 500 index returns 8%, the IUL will credit the actual rate of 8%.

However, IULs do have certain drawbacks:

1. Policy Costs and Risk of Lapse: IULs often come with high initial management fees, including administrative and surrender charges. If the credited interest is volatile, there is a risk that these fees could exceed the account's credited interest, leading to policy lapse.
2. Uncertain Parameters: While IULs are account-type policies linked directly to indices, key parameters such as minimum rates, cap rates, and management fees are not guaranteed, introducing various uncertainties.

Professional Investor Restrictions 

Indexed Universal Life (IUL) insurance is a complex financial product with specific entry restrictions, primarily designed for professional investors. To purchase an IUL policy, prospective investors must meet stringent qualification standards to ensure that only financially literate individuals can access this intricate product. The qualification process involves a comprehensive assessment of personal financial capabilities, including annual income, net worth, and investment experience. To qualify for an IUL policy, the holder must be a professional investor or have a total household asset of HK$8 million or more (or equivalent currency).

Financial institutions typically require potential investors to demonstrate substantial financial qualifications, including maintaining a significant annual income, usually exceeding $200,000, and possessing a verifiable investment portfolio with corresponding assets. Investors must also provide proof of at least three to five years of investment experience to demonstrate their ability to navigate complex financial tools.

Professional certifications play a crucial role in the qualification process. Investors should hold advanced financial credentials to showcase a comprehensive understanding of complex financial products and complete specialized financial literacy assessments. These requirements ensure that only individuals with proven financial expertise can access this product.

The Indexed Universal Life insurance product combines life insurance protection with unique investment components. It allows qualified investors to potentially benefit from market-linked growth while maintaining their life insurance policy. The product links cash value growth to specific market indices, such as the S&P 500, and is carefully designed with protective measures, including caps on returns and safeguards against losses during market downturns.

The qualification process is thorough and multi-layered. Prospective investors must undergo detailed financial background checks, complete comprehensive risk tolerance assessments, and pass mandatory financial knowledge examinations. Financial institutions verify professional certifications and implement ongoing financial monitoring to ensure continued suitability.

Ultimately, Indexed Universal Life insurance represents a specialized financial solution designed for a specific group of investors. Its unique structure and strict entry requirements emphasize the importance of financial expertise.

Remark：This article was generated by Generative AI (GenAI) and edited by ARCH Team. For all external links or information, please refer to their latest updates.