Insurance that can grow up insured: index-type life insurance, variable-amount life insurance, can it resist the depreciation of the insured amount?

variable life insurance

At the end of the year, various insurance companies have made special efforts to launch many new insurance products.

Colleague Lao Wang took the opportunity to add new critical illness insurance. After buying it, he complained to the insurance gentleman:

“I have already bought 1 million critical illness insurance coverage, but after 10 years, 20 years, will the 1 million insurance coverage be only worth 100,000 yuan? Insurance companies are too shrewd and unfair at all, so they can’t Design insurance that can grow up?

Presumably, many insurance consumers have doubts like Lao Wang. In this issue, the insurance gentleman will solve your doubts.

Is it fair to buy this way?

To understand whether it is fair, you must first understand the components of premiums.

Premium paid by us = pure premium of insurance product + additional cost

The pure premium of insurance products, you can understand it as the ex-factory price of the product; the

additional cost, you can understand it as miscellaneous expenses such as advertising fees, channel agency fees, and management fees.

The amount of insurance we buy, such as 500,000, corresponds to the pure premium paid, which is obtained through an actuarial model, taking into account comprehensive factors such as the expected inflation rate (that is, the rate of depreciation of money) and the rate of return on premium investment.

That is to say, the insurance amount sold to us by the insurance company corresponds to the pure premium paid by us, which is a relatively fair transaction.

Then the problem arises. The expected inflation rate will definitely be different from the actual value, which will inevitably lead to the depreciation of the insured amount.


The reason why the surcharge was not included in the discussion is that the surcharges of various insurance companies are different. Some insurance companies especially like to invite celebrities to advertise. Of course, the surcharge is high, and the price of insurance products is also high.

Is there any insurance that can grow up?

The first type: index life insurance (English name abbreviation: IUL)

Index-type life insurance means that after the premium is deducted from all expenses, the remaining funds are used to invest in the underlying (stock or index fund) linked to the corresponding index.

Index-type life insurance, which currently has no corresponding product in my country, is very popular in the United States.

Popular reasons are:

Because the index is a comprehensive reflection of the rise and fall of many stocks, its income has better stability than individual stocks, in other words, the investment income is relatively stable.

Take the index life insurance provided by the American insurance company VOYA as an example, its index has three strategies for policyholders to choose from:

S&P Index Strategy, 2 Year Global Index Strategy, and 5 Year Global Index Strategy.

The global index strategy refers to the US Standard & Poor’s Index, the European Stoxx Index, and the Hong Kong Hang Seng Index.

The ability of index-type life insurance to resist inflation depends on the investment rate of return. According to the demonstration rate of return of index-type life insurance in the United States in recent years (about 6.7%), the ability to resist inflation in general.

The second type: participating life insurance (participating insurance)

Participating insurance refers to a life insurance product in which an insurance company distributes its actual operating results higher than the surplus generated by the pricing assumptions to policyholders in a certain proportion.

Since life insurance companies have to distribute part of their surpluses to policyholders in the form of dividends, the actuarial assumptions of participating insurance products are conservative in pricing, resulting in higher policy prices.

The main investment channels of participating insurance premiums are deposits, government bonds, large-scale infrastructure construction, and secondary market investment with a maximum ratio of 10%. Generally speaking, the risk is small and the investment income is relatively stable.

According to the dividend distribution of insurance companies in China in 2017, the rate of return of participating insurance is between 4% and 5%, which is a low-risk financial product, and its ability to resist inflation is also limited.

At present, most of the insurance wealth management products in the insurance market use cash dividends, such as Pacific Insurance and Ping An Insurance. In addition to the way of cash dividends, there are also ways to increase dividends. The representative insurance company is China Taiping Life Insurance.

Popular science:

Cash dividends: Dividends are retained in the insurance company, and are stored at a fixed interest rate every year, accumulating interest.

Increase in dividends: Increase the current dividends to the existing insured amount of the policy, and use the increased insured amount as the basis for the next year’s dividends, which is equivalent to compound interest (the dividends increase the insured amount, and the newly increased insured amount will add bonus).

This method of dividends can only be paid in cash when applying for insurance claims or exchanging a certain percentage of the insurance when surrendering the insurance.

Cash dividends are suitable for investors who are pursuing medium-term investment returns.

Incremental dividends are suitable for: investors who pursue long-term investment returns.

The third type: variable life insurance (variable life insurance)

Variable life insurance refers to a kind of life insurance in which the insurance amount changes with the operation of the premium funds during the insurance period.

Variable life insurance is essentially securitized life insurance.

Its features:

1. It has the guarantee function of insurance (the guarantee function is not strong)

2. The investment function is realized through the investment fund of the independent investment account

Because variable life insurance requires policyholders to have a certain knowledge of investment and financial management, variable life insurance is very rare in my country’s insurance market at present.

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By Michael Caine

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