Is life insurance really necessary? Hiroko Ogiwara on “Wisdom to Survive the Inflationary Era

Be wary of keywords such as “savings-type” and “foreign currency-denominated

Many households are under pressure to reevaluate their spending, as price hikes in food and other products are not keeping pace with wage hikes and other income gains. Life insurance policies are no exception. Some people sign up for life insurance policies to prepare for future uncertainty, but what policies are unnecessary and what policies should be left in place?

Price hikes in food and other products are continuing. As a result, people are holding off on purchases, and personal consumption has been sluggish. Economic statistics also clearly show the effects of sluggish consumption.

According to a survey of price revisions by 195 major food product companies conducted by Teikoku Databank, a private research firm, the total number of price hikes this year was 32,395 items, and the average rate of price increase per item was 15%. We expect that the maximum number of price hikes next year will be around 10,000 items.

While it would be nice if wage increases exceeded price hikes, the reality is that it will continue to be difficult. The second preliminary report of real (seasonally adjusted) gross domestic product (GDP) for the July-September period of this year showed a decline of 2.9% on an annualized basis from the previous year. The Cabinet Office cites sluggish consumption of food, clothing, and other items as the main cause.

On the other hand, if a person in his or her prime working years becomes ill one day while raising children and then dies, his or her family will be in trouble. Because of such concerns, many people purchase life insurance products that pay out in the event of injury, illness, or death. Is this expenditure a burden on the family budget and is there no room for review?

One household spends about 36,000 yen a year on life insurance. Many people sign up for life insurance policies without fully understanding them.

According to a recent survey, 80% of households have private life insurance policies, and the amount spent on such policies is nearly ¥360,000 per year. Simply reviewing this area will have a significant impact on household finances.

According to the Life Insurance Cultural Center’s survey of life insurance in FY2009, the household participation rate for all life insurance, including individual annuities, was 89.8%, with annual premiums paid totaling 371,000 yen. The reason for this is to cover medical and hospitalization expenses and to guarantee the livelihood of the family in the event of an emergency, among others. Of this total, 80.3% of households have private life insurance coverage, with the majority of them paying annual premiums of 359,000 yen.

In this survey, for example, the amount of ordinary death insurance paid in the event of death is 19.27 million yen for the subscribed portion of private life insurance and 20.27 million yen for all policies. If a person dies unfortunately, the money needed for the family left behind might be considered to be about 20 million yen. Although this is an average, is that really how much is needed?

Life Insurance Contracts

There are things that should be reviewed, and there are things that should not. The question is whether it is appropriate or not.

(Ms. Ogiwara, same as below).

Life insurance products are difficult to understand because of their difficult terminology, and many people sign up for them without fully understanding them, but the mechanism is very simple, he says.

According to Mr. Ogiwara’s book, “Hoken Girai” (PHP Sensho), common life insurance products are similar in structure to “lottery tickets. He explains that it is like a “misfortune lottery,” in which everyone contributes money to a lump sum in case of injury, illness, or death, and the money is paid out to those who suffer misfortune. Based on this structure, Mr. Ogiwara believes that the number of necessary life insurance products will be limited if one also takes full advantage of the public support systems that are available in case of emergencies.

Until a child enters the workforce, the amount of life insurance coverage for each child is million yen of life insurance for each child until they enter the workforce. million yen of life insurance for each child until they enter the workforce.

In the first place,” says Ogiwara, “you don’t need a life insurance policy once your children are grown. To prepare for the possibility of being unable to work due to injury, illness, or death while raising a child, he says, one should consider 10 million yen as the amount needed until one child enters the workforce, and purchase a life insurance policy for that amount.

When signing such a contract, Ogihara advises that one should not hesitate to choose the company with the lowest premiums. The reason for the difference in premiums, even though the amount of insurance paid is the same, is that different companies have different maintenance and management costs, and he also recommends that online insurance companies, which have no stores, are cheaper.

On the other hand, some people may be worried about insurance companies going bankrupt, even if the premiums are low. Mr. Ogiwara points out that the size or name recognition of an insurance company is irrelevant when receiving insurance benefits. Even if an insurance company goes bankrupt, there is no need to worry, he says, because the company is a member of the Life Insurance Policyholders Insurance Organization of Japan, and the policyholders’ insurance policies will be transferred to another company. Looking more closely, the lump-sum insurance portion is fully covered by the guarantee, while the savings-type insurance portion may be reduced.

Once the children reach adulthood, the 10 million yen insurance policy will no longer be necessary, but there may be some concern about what would happen if they themselves were to suffer an injury or illness. Mr. Ogiwara addresses this concern.

If you are a salaried worker, there are various benefits available to you, such as sickness benefits, even if you do not have sickness and accident insurance. Also, seniors can reduce their out-of-pocket expenses.

In the event of an injury or illness, he says, there are many areas that can be covered by public health insurance without having to purchase private medical insurance. The co-payment is 30%, and in addition, the high-cost medical care reimbursement system keeps the monthly cost down to a certain limit. If a worker is out of work for four days or more, an injury and illness allowance system is available, under which two-thirds of his or her salary is paid for up to one and a half years. Workers’ accident compensation insurance may also apply to injuries and illnesses incurred while at work.

Some people worry about medical expenses in old age, but he also points out that after age 70, the burden is lighter for most people than it was during his working years.

If you are going to buy life insurance, “medical insurance” is better than “cancer insurance,” which is a “throw-away” type of life insurance.

On the other hand, a variety of insurance products have been introduced recently. Since not a few people get cancer and die, there are insurance products that specialize in cancer. Mr. Ogiwara says, “If you want to get one, choose a medical insurance that is as inexpensive as possible, not a cancer insurance, but a medical insurance for any disease. He points out that more than 90% of cancer patients are cured by health insurance. Cancer gets better and gets worse, but the aforementioned sickness benefit system can be used repeatedly for a total of one and a half years, “which is quite a long time,” he says.

Still, Mr. Ogiwara believes that if one is worried about cancer or other injuries and illnesses, “it is a good idea to save up properly ” first. On the other hand, insurance policies with special clauses for the three major diseases of cancer, stroke, and acute myocardial infarction have strict requirements for coverage and require a large premium payment, so he recommends that people carefully assess the cost-effectiveness and consider purchasing such policies after careful consideration.

Mr. Ogiwara recommends that if you are going to purchase insurance, you should choose a “lump-sum” type. With savings-type insurance, the investment yield (expected interest rate) at the time of enrollment lasts until the end of the policy period. Therefore, it is a loss to purchase insurance in times of low interest rates. On the other hand, savings-type insurance policies purchased at high interest rates in the past will accumulate money, so it is better to leave them in place without canceling or otherwise reevaluating them.

There are products called “foreign currency-denominated,” which are supposed to be able to be invested overseas where interest rates are high, unlike Japan where interest rates are low, and have a savings feature with a good investment yield. Mr. Ogiwara cautions that insurance payments, as well as the insurance benefits and maturity payments received, are also in foreign currency, which is a product of foreign currency. While the risk of exchange rate fluctuations is borne by the subscriber, the insurance company can earn commissions on insurance with no risk and also earn exchange commissions on foreign currency products, thus receiving double commissions, he says.

When signing up for a life insurance product, one should consider whether it is still necessary for them, taking into account these basic mechanisms and features, as well as the use of public support programs. It is okay to review those that are unnecessary.

If, as a result of reviewing your life insurance policy, you have more funds available, you may want to invest them. As we enter the era of inflation, deposits are diminishing in asset value.

Recently, the government has been offering various preferential measures in taxing asset management to encourage investment.’ They are the NISA that started in 2002 and the new NISA that will start next year. The new NISA will expand the scope and period of application. Mr. Ogiwara offers the following advice on investment.

For the time being, it is better to have a good savings account. Investment is for those who have a lot of money. Those who have debts such as mortgages and educational loans should pay them back as soon as possible. Those who have no debts and plenty of money should invest.”

Even if they do invest, Mr. Ogiwara believes that for the time being, the uncertainty is so strong that it is not suitable for amateurs to invest. The Chinese economy is slowing, and the Japanese government of Fumio Kishida is experiencing political instability, including a slump in approval ratings, among other factors.

He says, “People with money can invest, but this is not a situation for amateurs to embark on a venture with a small amount of money.”

HirokoOgiwara , an economic journalist, was born in Nagano Prefecture in 1954. After graduating from university, she worked at an economics firm before setting up her own business. Since then, she has worked as an economic journalist. As a pioneer in household economics, she is a leading expert in explaining how the economy works in a simple way that is rooted in daily life.