Premium financing glossary: 50 bank and policy terms in English and Chinese

An insurance funding arrangement in which the proposed policyholder borrows from a lender, usually a bank, to pay the premium of a new life policy and assigns all or part of the policy rights to the lender as collateral. This is the Insurance Authority's definition. The loan is a contract separate from the policy; the insurer is not a party to it.

The bank or other financial institution that advances the financed portion of the premium and holds the assignment. In Hong Kong the lender is usually an authorised institution supervised by the HKMA, often acting at the same time as the licensed insurance intermediary that sold the policy.

The person or company that applies for the policy and the facility, pays the unfinanced premium and the interest, and remains liable for any shortfall between policy proceeds and the loan. Corporate borrowers are accepted by some banks under separate terms.

The position of a bank that is both the licensed insurance intermediary for the policy and the lender for the facility. The IA circular says such a bank cannot use the fallback of assessing the policy as self-funded, because it already has the facility details and must give them to its technical representatives.

The loan contract issued by the bank setting out the amount, loan-to-value, pricing formula, tenor, review frequency, margin-call terms, fees and events of default. Since 16 October 2023 it must show the HIBOR-based, Prime-based and cost-of-funds scenarios with equal prominence where the bank has discretion.

A facility that can be drawn and repaid within a limit, typically renewed at annual review. Most Hong Kong premium financing is written this way. Where the tenor is not fixed, the IA circular tells intermediaries to assume for affordability that the facility lasts the whole policy term.

A facility with a stated tenor, for example ten years interest-only with principal due at the end. It gives a known repayment date but, like a revolving line, usually remains repayable on demand under the facility letter.

A bank loan secured on a policy that was already issued and paid for with the customer's own funds. The IA circular's premium financing requirements, including the IFS-PF, do not apply because the policy purchase was not financed, but the bank's credit rules and loan-to-value logic are the same.

A loan from the insurer against the cash value of an existing policy, a contractual right under many whole life policies. There is no bank, no assignment and no margin call; interest is set by the insurer and, if unpaid, accrues against cash value and can cause lapse. Distinct from premium financing.

The document by which the borrower assigns policy rights to the bank as collateral. It typically transfers the rights to receive surrender value and death benefit, to cancel within the cooling-off period, to surrender, to withdraw, to apply for policy loans and to approve changes such as a new beneficiary or a further pledge.

The notice lodged with the insurer informing it of the assignment. The insurer must verify the signature and policy number and keep a copy; the 2024 inspection criticised an insurer that relied on the bank's confirmation alone. Proceeds are paid to the assignee once the notice is recorded.

The document by which the bank gives up its security once the loan balance is zero, and the insurer's record of it. Until it is recorded the borrower cannot exercise assigned rights without the bank's approval.

The amount the insurer guarantees to pay if the policy is surrendered on the day it is issued, after initial charges. Banks apply their loan-to-value to this figure, not to the premium. The IA noted in August 2026 that insurers have been raising day-one values to enhance competitiveness.

The loan expressed as a percentage of the policy's guaranteed surrender value. Published levels in late 2026 include 75% (HKD) and 80% (USD) at one bank and a 90% illustration at another. The ratio is set at drawdown and monitored against the current surrender value thereafter.

The list of policies, by insurer and plan, that a bank will accept as security for premium financing. Usually single-premium participating whole life, universal life and endowment plans; investment-linked and regular-premium plans are rarely included.

The premium divided by the borrower's own contribution, a marketing measure of how much policy a given cash outlay buys. The IA's August 2026 circular reported sales material claiming up to nine times from a 10% contribution and warned that higher policy leverage amplifies the volatility of policy returns.

In the IA and HKMA standards, the loan amount divided by the borrower's existing own financial resources. A ratio above 1 means the borrower could not repay in full on demand without surrendering the policy. Banks must disclose it before the facility is accepted; most insurers apply a haircut to the borrower's funds before computing it.

A reduction applied to declared assets when verifying asset proof or computing the leverage ratio: jointly owned assets count only for the borrower's share, encumbered assets net of the liability, and most insurers apply a further 10% to 50% to own funds. Owner-occupied property is normally excluded altogether.

A bank's ongoing comparison of the outstanding loan with the policy's current surrender value, at prevailing exchange rates where the currencies differ. A shortfall against the agreed ratio triggers a collateral top-up request.

The rate at which banks lend Hong Kong dollars to one another. The Hong Kong Association of Banks owns the HKD Interest Settlement Rates and publishes them each business day at 11:15 a.m. for tenors from overnight to twelve months, as a trimmed mean of quotes from a panel of 20 banks. Premium financing uses the 1-month or 3-month tenor.

A reference lending rate set by each bank for itself, changed infrequently and usually in step with the HKMA Base Rate. On 29 October 2026 major banks' HKD Prime stood at 5.00% or 5.25%. Premium financing priced off Prime is quoted as Prime minus a margin.

The rate at which the HKMA lends to banks through its discount window, set by a formula linked to the US federal funds target under the Linked Exchange Rate System. Banks consider it when setting Prime but it is not itself a premium financing benchmark.

The bank's own, unpublished cost of raising the money it lends, used as a pricing basis under some facility letters and re-fixed each interest period. The HKMA requires any discretion to substitute COF for HIBOR or Prime to be disclosed at application and shown with equal prominence in the facility letter.

The fixed percentage the bank adds to HIBOR or COF, or subtracts from Prime, to arrive at the all-in rate. Published premium financing margins in late 2026 cluster between 0.75% and 2% over 1-month HIBOR and 0.4% to 0.8% under Prime, varying by relationship tier and loan size.

The lowest all-in rate the facility can carry regardless of the benchmark; one bank sets 0.75%. Protects the bank if HIBOR falls towards zero as it did in 2020 and 2021.

The recalculation of the facility rate when the benchmark is read afresh: monthly for 1-month HIBOR, quarterly for 3-month HIBOR, daily for Prime, each period for COF. The margin does not change at a reset. Distinct from a change of rate basis.

The bank moving a facility from one formula to another, typically from HIBOR or Prime to cost of funds, under a clause in the loan agreement. A change of terms rather than a reset; the Code of Banking Practice requires at least 60 days' notice of significant changes to loan terms.

A period, commonly three or five years, during which the facility carries a fixed rate, after which it reverts to the floating formula. Offered in application windows; the rate may be indicative until processed and early repayment during the period usually carries a charge.

The floating formula that applies after a fixed-rate period ends, for example 1-month HIBOR plus 0.75% to 2%. The reading on the reversion date is unknown when the fixed rate is taken.

A higher rate charged on overdue amounts or on principal not repaid at tenor end. Published levels include Prime plus 4.75%, overnight HIBOR plus 5% and 1-month HIBOR plus 6%.

A rate charged on any balance above the facility's credit limit, for example Prime plus 6%; the borrower must also pay cash to bring the balance back within the limit.

The convention for converting an annual rate into daily interest: actual days over 365 (366 in a leap year) for HKD loans and actual over 360 for USD loans, which makes a USD nominal rate slightly more expensive than the same HKD rate.

The bank's periodic reassessment of a revolving facility, at which the limit, pricing or ratio may change or the facility may not be renewed. A non-renewal makes the balance repayable even though no default has occurred.

A demand that the borrower pay cash or add collateral so that the loan falls back below the agreed percentage of surrender value, within the time stated in the facility letter. Triggered by a ratio breach, overdue interest, an insurer downgrade, a review or a material adverse change.

The time allowed in the facility letter to meet a margin call before the bank exercises its rights. Typically days; default interest runs on overdue amounts meanwhile.

The bank's exercise of its assigned right to surrender the policy, apply the surrender value to the debt, pay any balance to the borrower and pursue any shortfall. Published timetables include surrender after 90 days of overdue interest or 60 days after an unpaid tenor end.

The bank's right to apply credit balances in the borrower's other accounts with it against amounts owed under the facility. Disclosed in the IFS-PF item 7.

An event, such as a serious deterioration in the borrower's circumstances, the insured's death or a corporate borrower's winding-up, on which the bank may change, reduce or cancel the facility, in some facility letters without notice.

A repayment pattern in which the borrower pays interest monthly and principal at tenor end or on demand. The dominant pattern in Hong Kong premium financing.

Interest added to the loan balance instead of being paid, where the facility letter permits. It raises the loan-to-value ratio over time and can trigger a margin call without any market event.

A fee or percentage charged for repaying principal early. Usually nil or a small flat fee on floating-rate facilities; 2% of the amount repaid in the early years of a fixed-rate period at one bank.

The 21 calendar days after delivery of the policy or of the cooling-off notice, whichever is earlier, in which a Hong Kong long-term policy can be cancelled for a refund of premium subject to any market value adjustment. Where the policy is financed the right is usually assigned to the bank and cancellation needs its consent; the refund goes to the bank, which returns the net amount.

The IFS-PF's term for the difference between the benefits shown in the benefit illustration and the net amount the borrower receives after the loan principal and interest are repaid from policy proceeds. The statement warns it may be significant where most of the premium was financed.

An IA-prescribed form of fifteen items on the risks and implications of financing, with declarations by the customer (including whether financing was solicited and the facility details) and by the intermediary. Required for every new long-term policy acquired with financing, explained as soon as financing is raised and signed before policy issuance; customers cannot opt out.

An IA-prescribed form, required since 1 September 2016 for every new long-term policy application by a holder of a PRC resident identity card, signed on every page in Hong Kong. A financed application by a Mainland resident involves both the IFS-MP and the IFS-PF.

The standardised loan disclosure document required by the Code of Banking Practice, stating the rate basis and range, default rate, fees, repayment pattern and, since the December 2023 revision, the benchmark's recent highs and the repayment at those levels. The borrower acknowledges having read it before applying.

The suitability questionnaire required under IA guideline GL30 before any long-term policy is recommended. For financed applications it must ask about outstanding liabilities and pledged policies, record the affordability test and, at most banks, display the leverage ratio.

The three-limb test in paragraph 2 of the IA circular: ability to pay the unfinanced premium at the outset, to meet all scheduled repayments over the entire tenor, and to repay the sum owed if demanded before the policy matures. In force for applications received from 1 January 2023.

The situation defined in paragraph 8 of the IA circular in which a repayment demanded by the lender before maturity cannot be fully met from the customer's own funds and can only be met from the proposed policy's surrender value. Triggers additional measures: asset and income verification, documented justification and disclosure of the leverage ratio.

The conduct principle, drawn from the Insurance Core Principles and IA guidelines, that the IA invoked in August 2026 when warning that sales practices emphasising short-term leveraged gains without disclosing downside may breach it.