Reverse mortgage

Assignment of life insurance policy

The borrower may choose to assign his life insurance policy to the bank as an extra collateral in addition to his residential property under a reverse mortgage. The additional collateral will increase the amounts of monthly and lump-sum payouts of the reverse mortgage loan.

The amount recoverable under a life policy assignment to be used by the bank for repayment of reverse mortgage loan is limited to the cash surrender value of the life insurance policy.

There is no limit on the number of life insurance policies for assignment but the aggregate amount of cash surrender value is capped at the specified property value of the property under the reverse mortgage loan.

The assignment can be made at the time of application for a reverse mortgage loan or at any time before the reverse mortgage loan is terminated.

The option of life insurance policy assignment is available only when the number of borrower is not more than two. It is necessary that the beneficiary of the borrower's life insurance policy be the borrower himself or his own estate in the case of a single-borrower application, or the co-borrower in the case of a joint-borrower application. The borrower is required to arrange with his insurance company to change the beneficiary as necessary.

When there are two borrowers, the amount of the monthly annuity payment will depend on the age of the younger borrower. The entry age of the younger partner is used for calculation.

In general, when the reverse mortgage loan terminates and the sale proceeds from the property are insufficient to repay the total outstanding loan amount in full, the bank will apply the payment derived from the life insurance policy, up to the then available cash surrender value, to recover any shortfall. However, if any shortfall still remains after such repayment, it will be borne by the HKMC under an insurance arrangement between the bank and the HKMC. In any case, any surplus after full repayment of the reverse mortgage loan shall be returned to the borrower (or his inheritors).

The borrower may apply for the release of his life insurance policy assigned to the bank under the reverse mortgage loan at any time subject to the payment of a handling fee. There is no penalty for such release.

Eligibility Criteria for Assignment of Life Insurance Policy

In general, the life insurance policy eligible for assignment must:

  1. be taken out by the borrower as both the policyholder and the insured
  2. be issued by an authorized insurer in Hong Kong
  3. be denominated in Hong Kong Dollars or United States Dollars
  4. have accrued a cash surrender value which is non-decreasing for the remaining term
  5. have the premium fully paid-up by the policyholder (Note)
  6. not be associated with any investment features; and
  7. be assignable and not contain any restriction on change of beneficiary

(Note) If the borrower's life insurance policy has not been fully paid up and/or has a policy loan granted by the insurance company, the borrower may apply to borrow a lump-sum payout to fully pay up the life insurance policy and/or repay the policy loan at the time of application for assignment.

Payout Amount of Reverse Mortgage with Assignment of Life Insurance Policy

The amount of monthly and lump-sum payouts for a reverse mortgage loan secured by a property and the assignment of life insurance policy is solely determined by the HKMC with reference to the specified property value and the applicable cash surrender value of the life insurance policy at the time of loan application.

For every HK$1 million of the property's value plus HK$1 million of cash surrender value, the indicative monthly payment amount for borrowers at the entry age of 55, 60 or 70 are as follows (Note):

Term of annuity payment

Amount of monthly annuity payment (HK$)

 

One borrower

Two borrowers

55 years old

60 years old

70 years old

55 years old

60 years old

70 years old

10 years

$5,520

$6,500

$9,100

$4,800

$5,780

$8,200

15 years

$4,160

$4,920

$6,840

$3,670

$4,340

$6,220

20 years

$3,570

$4,200

$5,860

$3,080

$3,700

$5,320

Life annuity

$2,850

$3,520

$5,500

$2,490

$3,080

$4,960

(Note) The monthly payout amounts are solely determined by the HKMC on a case-by-case basis and may be different from the indicative levels.

Examples

Example 1

When there are two borrowers, the amount of the monthly annuity payment will depend on the age of the younger borrower. The entry age of the younger partner is used for calculation.


Borrower(s) and entry age


Husband aged 70 and wife aged 60


Payment term


10-year


Property value


$6,000,000


Cash surrender value at application for assignment of life insurance policy


$6,000,000


Monthly payout amount


$5,780 x 6 = $34,680


Example 2

The property value used for calculation is capped at HK$15 million. Even though the property value in this example is HK$28 million, the monthly payment will be determined as if the property were worth HK$15 million.


Borrower(s) and entry age


Husband aged 70 and
wife aged 70


Payment term


20-year


Property value


$28,000,000


Cash surrender value at application for assignment of life insurance policy


$15,000,000


Monthly payout amount


$5,320 x 15 = $79,800