DOCVIT | Risk Analysis of Hong Kong Insurance

Source: Beijing DOCVIT Law Firm   Time: 2018-12-28 20:19:02  Author: Beijing DOCVIT Law Firm

In recent years, the number of mainlanders who have purchased insurance in Hong Kong has shown a sharp upward trend. Compared with similar products in the Mainland, Hong Kong's insurance has the characteristics of low rates, high returns and wide coverage, which are the most important factors in attracting mainland policyholders. However, overseas insurance policies are not suitable for everyone. Those who go to Hong Kong to buy insurance should buy appropriate insurance from the actual situation. This note by the International Affairs team form Beijing Docvit Law Firm briefly discusses the risk analysis of Hong Kong insurance.

I. Stunts of exemption from estate tax

Accordance with the Article 40 to Article 42 of the Insurance Law of the People's Republic of China, after the insured has died, if the beneficiary is not clearly designated, the insurance premium shall be the inheritance of the insured in accordance with the Inheritance Law. If there is a clear designation of the beneficiary, the insurance premium is not distributed as an inheritance and the estate tax can be circumvented.

According to Article 5 of Estate Tax Law of the People's Republic of China (Draft), the insurance premiums obtained by the heirs insured by life insurance are not included in the total amount of taxable estates. Only insurers registered in China can be exempt from inheritance tax.

II. Repatriation of Claims and bonus withdrawal

In Hong Kong, the insured person is more strict in the examination when insured, and must declare his or her physical condition truthfully. In the case of claims, only the insurance liability is required, and the audit is loose. The Hong Kong policy is a global medical inpatient insurance policy that can be settled both domestically and internationally, and you can get international claims checks without going back to Hong Kong, whether you are in the domestic or in Hong Kong or abroad.

Withdrawing the payment of Hong Kong insurance claims and dividends mainly through the following three ways:

1. Wire transfer: The insurance company directly transfers the UnionPay card account of the mainland insured person through UnionPay. The handling fee for cross-border remittance is borne by the mainland insured and the wire transfer is paid. It is US dollars or Hong Kong dollars. To be converted into RMB, it is also necessary for the holder/beneficiary to personally go to the bank to make a settlement.

2. The insurance company will send a cash check of the customer's name directly to the customer and confirm it by letter. The cheque can be deposited in any local bank in Hong Kong;

3. Bank of China Beijing Bank draft: Customers can directly hold money orders to exchange at any Chinese bank outlet. However, in the context of the official launch of CRS in Hong Kong and the Mainland, as well as the strict investigation of capital outflows and stricter foreign exchange controls in the Mainland, the difficulty of paying premiums, taking dividends, and raising claims has greatly increased.

III. Jurisdiction Principle of Risks and Insurance Law

Under the Insurance Companies Ordinance, the Article 41 of the Laws of Hong Kong, any Hong Kong insurance company authorized in Hong Kong is legal in promoting life insurance in Hong Kong, regardless of whether it is a Hong Kong local, a foreigner or a mainland Chinese. Hong Kong's law is the "signing principle". Only the policies signed in Hong Kong will be protected by Hong Kong law.

In April 2016, the China Insurance Regulatory Commission issued the “China Insurance Regulatory Commission's Risk Warning for Mainland Residents to Purchase Insurance in Hong Kong”. The first article clearly states that “Hong Kong policies are not protected by mainland laws”. Mainland residents, who insure Hong Kong insurance, need to go to Hong Kong to sign the relevant insurance contract. If the insurance policy in Hong Kong is insured, it is an illegal "underground policy" that is neither protected by the laws of the Mainland nor protected by the laws of Hong Kong. Secondly, mainland residents insured Hong Kong insurance applying the laws of Hong Kong. In the event of a dispute, the insured must act in accordance with the laws of Hong Kong. Compared with the Mainland, Hong Kong has higher legal costs and may face higher time and cost. In addition to legal proceedings, policyholders may also choose to file a complaint with the Insurance Claims Complaints Bureau of Hong Kong regarding claims for claims. However, the current limit of compensation that the bureau can arbitrate is 1 million Hong Kong dollars. The compensation dispute for large-sized policies cannot be handled through the ruling of the bureau.

IV. Contract specific terms

The Hong Kong insurance product terms use traditional Chinese characters and are expressed in different ways from the Mainland. The insured must carefully read the insurance clauses to avoid contractual disputes arising from inaccurate understanding of the terms. But how many people read the insurance terms before buying insurance? If you remember, when you fill out the insurance policy, fill out a lot of forms and make a lot of hooks. Are you sure to read them all the time, and understand them? There are statements and warranties about illness, health, smoking, family history, disclosure of occupations, elaboration of the legality of funding sources, commitment to anti-money laundering obligations, disclaimers and confirmation of reporting and disclosure, Are you sure that you have seen, understood, and accepted the agreement of transnational judicial assistance and the potential liability for misrepresentation?

The traditional Chinese word contract seems to be a hassle, and the English insurance contract is more difficult to understand. The insurance contract has been in operation for several decades. In the process, will the family situation change and what should the insured die? What if I am divorced from the beneficiary? What if the beneficiary dies? What if the beneficiary’s parents are divorced? Does the beneficiary need to review regularly? The mainland and Hong Kong laws on how to separate divorce policies are different, and the inheritance laws of the two places are also very different.

V. "Highest Integrity Principle" in Hong Kong and "Faithful Disclosure Principles" in Mainland

The Hong Kong Insurance Law clearly stipulates the “Highest Integrity Principle”, which states that the nature of the insured matters and the various conditions related to them are facts within the scope of the insured’s knowledge, unless the insured actively informs the insurance company. The facts will not be known, so the insured should disclose all facts to the insurance company on the principle of “highest integrity”. In mainland China, the first paragraph of Article 16 of the Insurance Law provides for “obligation of making a full and accurate disclosure”, that is, if the insurer makes an inquiry about the subject matter of the insurance or the relevant circumstances of the insured, the insured shall truthfully inform the insured. For example, a mainland policyholder insured the major illness insurance in Hong Kong in 2001 and filed a claim for lung cancer in 2012. When the insurance company conducted a claim investigation, it found that the insured had not notified the insurance company of the case of intravenous injection in 1990-1993. The insurance company believed that the above matters had a significant impact on the underwriting. Eventually refused to pay and refunded the insured's premium of 42,000 Hong Kong dollars. Perhaps many people think that that it is an infusion, is it so serious? In Hong Kong, is it not by your own judgment, but by the judgment of the insurance company.

Second, the difference between the non-controversial terms. Insurance has an incontrovertible clause in both Hong Kong and the Mainland. But the difference between the two is great. In the Mainland, Article 16 of the Insurance Law stipulates that the insurer shall not terminate the contract if it has been more than two years from the date of the establishment of the contract; in Hong Kong, the non-controversial clause is a common clause in the life insurance policy, usually as long as the policy takes effect for a period of time (usually for a period of two years). Even if the insurance company later discovers that the policyholder and/or the insured does not disclose any important facts about the issuance of the policy within the scope of the knowledge, if there is no fraudulent component, the insurance company may not raise a dispute or defense. But how is fraud defined? If the undisclosed information is essential for the issuance of an insurance contract, the insurance company can file a dispute no matter how long the insurance contract is issued.

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