Author: DBS Wealth Insight Editors
Updated: 9 March 2026
When people hear the word “borrowing”, they often associate it with financial pressure or risk. Some may even wonder: if someone has substantial wealth, why would they still need to borrow?
In reality, borrowing to pay insurance premiums is an increasingly common financial arrangement known as premium financing.
Simply put, it works similarly to purchasing a major asset such as property. Instead of paying the full amount upfront, financing may be used to preserve liquidity. With premium financing, policyowners borrow funds to pay insurance premiums rather than using a large amount of cash all at once. The goal is not short-term return, but better capital management and risk planning.
Use case 1: Enhancing capital efficiency
Some individuals prefer to keep their capital available for other purposes, such as business expansion, investments or contingency planning. By financing premiums instead of paying them upfront, they can avoid locking a large amount of cash into a single arrangement.
For high-net-worth individuals, the cost of interest can sometimes be viewed as the price of maintaining liquidity and financial flexibility.
Use case 2: Supporting long-term asset allocation
From an asset allocation perspective, insurance is often considered a long-term component of financial planning. Some investors may wish to incorporate protection into their overall financial structure without significantly altering their existing investment portfolio. Premium financing can allow them to do so while maintaining a balanced allocation.
Use case 3: Bridging cash flow timing gaps
For individuals whose income may fluctuate or whose wealth is largely tied up in less liquid assets, premium financing can help bridge timing gaps between premium payments and cash flow.
Just like businesses experience peak and off-peak seasons where income varies but expenses remain constant, having a financing arrangement can help smooth financial planning.
It is important to note that premium financing involves factors such as interest rates, asset values, market conditions and policy assignments. It may not be suitable for everyone. Before making such arrangements, individuals should fully understand the risks and seek professional advice to ensure the arrangement aligns with their financial circumstances and risk tolerance.
A quick refresher: understanding premium financing
Premium financing is a policy financing arrangement that allows you to obtain life protection while maintaining financial flexibility. When you purchase an insurance policy for wealth accumulation and/or life protection, you may obtain a loan from a bank to pay the insurance premiums. At the same time, all or part of the rights under the policy may be assigned as collateral, allowing you to preserve your capital for other purposes.
And remember:
To borrow or not to borrow? Borrow only if you can repay!
FAQ
What is premium financing?
Premium financing is an arrangement where a loan is used to pay insurance premiums, allowing policyowners to preserve their capital for other purposes.
Is premium financing suitable for everyone?
Not necessarily. Premium financing involves considerations such as interest rate risks, market fluctuations and policy assignment arrangements.
Reference:
Insurance Authority – Decoding Premium Financing and its Risks
Points to note on Premium Financing
Variable interest rates
The interest rate on a Premium Financing loan is calculated based on HIBOR/ Cost of Funds (“COF”) plus a margin, where HIBOR/COF will fluctuate and be subject to change from time to time according to market interest rate, and it is not capped. An increase in HIBOR/COF will mean you are required to pay more interest. The interest payable by you may even be higher than the return of the life insurance policy, leading to losses.
HIBOR is the Hong Kong Dollar Interest Settlement Rates as published by The Hong Kong Association of Banks (www.hkab.org.hk). Should you have any query on COF, please contact your DBS Treasures Relationship Manager or visit any of our branches for details.
Policy return is not guaranteed
Depending on your policy, the market and other factors, dividend payments may not be guaranteed, the non-guaranteed benefits may be zero which can affect your returns. Unlike for some types of investments, there is no historical support for deriving profit from the difference between a loan rate and the return from a life insurance policy.
Assignment of insurance policy
With Premium Financing, you consent to transfer your rights under the policy to the bank. Should you cancel a policy acquired through Premium Financing, the bank will hold the final decision on policy cancellation, you may have to repay the loan principal, any early repayment penalties, interest and other administrative fees accrued.
This article is intended for distribution within the Hong Kong Special Administrative Region only. For further details on premium financing considerations and potential risks (including exchange rate risk), please refer to: https://www.dbs.com.hk/personal/insurance/saving-retirement-income/premium-financing
Disclaimer
The information contained in this article is for general reference only and is subject to the policy terms of different types of insurance plan. This article does not constitute an offer for the purchase or sale of any banking or insurance products or services. Products and services are subject to individual needs. Customers should not solely rely on the information on this webpage alone to make any investment and/or insurance decisions. Premium financing is generally considered to be a payment option for customers which involves borrowing, incurring interest payment (the rate is not fixed), and losing your rights under the insurance policy and other risks. Please contact your Relationship Manager to assess your financial needs and understand the risks involved in Premium Financing before making any financial decision. For the specific details, terms and conditions of Premium Financing, please refer to relevant Premium Financing loan documents. Customers should read the documents in details to ensure they understand the risks involved.
The above information should not be construed as the offering, sale or solicitation of any insurance product or service outside the Hong Kong Special Administrative Region, nor does it constitute any insurance advice, product recommendation or offer of services. The content is provided for general information and reference purposes only and does not take account of your individual needs and circumstances, and reference only and does not include details of the relevant insurance products or services, including their terms and conditions or associated risks. You should read the related product information to understand the nature, features, risks and exclusions of the product(s) and determine if the above product(s) meets your needs and circumstances before proceeding with the application.
DBS Bank (Hong Kong) Limited (“the Bank”) makes no representation or warranty as to the accuracy or reliability of the above information and shall not be liable for any loss or damage arising from any inaccuracies or omissions, whether in tort, contract or otherwise.
If you have any questions, please seek independent professional advice.
For more information, please contact the licensed staff of the Bank.
