Following the trend of immigration through property investment in Hong Kong, wealthy individuals from mainland China are sparking a wave of purchasing insurance in Hong Kong. The latest data released by the Office of the Commissioner of Insurance in Hong Kong shows that in the first quarter of this year, mainlanders purchased HK$2.8 billion worth of insurance in Hong Kong, an increase of 55.5% compared to the same period last year. Last year, new insurance premiums issued by Hong Kong to mainland visitors reached HK$9.9 billion, accounting for 12.8% of the total new insurance premiums for the year. Beyond personal protection, wealthy mainlanders choose to purchase Hong Kong insurance for its underlying functions of tax avoidance, debt avoidance, and risk mitigation.
Family Succession and Successful Tax Avoidance
Rumors regarding the pilot implementation of inheritance tax in mainland China have been persistent, and despite official denials on several occasions, the wealthy remain uneasy. In common international practice, life insurance with a designated beneficiary can be used to avoid inheritance tax. Purchasing insurance in Hong Kong involves convenient procedures, and there are fewer payment disputes compared to mainland companies. Consequently, since rumors of inheritance tax pilot programs in certain mainland cities began several years ago, large-sum insurance policies in Hong Kong have become highly popular in the mainland. Out of consideration for avoiding inheritance tax, wealthy mainlanders travel to Hong Kong to purchase life insurance, designating their heirs as beneficiaries, in the hope that they can smoothly transfer their assets to the next generation without paying any taxes, thereby achieving the goal of asset transfer.
Preserving Strength and Successful Debt Avoidance
In mainland China, the average lifespan of a private enterprise is only 2.9 years, and many small and medium-sized enterprises are burdened with debt and fraught with crises. Once a business becomes unsustainable, some business owners will exhaust all means to raise funds or mortgage their factories to borrow money, and then use those funds to purchase insurance in Hong Kong. Since the right to insurance benefits takes precedence over creditor's rights, even if the company is liquidated, their life insurance remains unaffected.
Leveraging Insurance to Multiply Family Assets
Over the past year or two, as China's economic growth has slowed, some wealthy individuals have become concerned about their wealth shrinking during the economic downturn, which has sparked a strong interest in offshore insurance. Hong Kong insurance brokers state that a more common policy amount for high-net-worth individuals from the mainland is US$10 million, which is a very high amount by global standards. Against the backdrop of an economic slowdown, these individuals are most concerned about how to prevent their assets from depreciating. For the average middle class, due to concerns over the volatility of mainland policies, holding multiple properties may lead to future uncertain expenses such as property tax, real estate tax, and land tax. Therefore, it is better to use the funds from property to purchase insurance. When left to children, insurance, due to its leverage effect, allows assets to multiply rapidly without any future worries.