Life insurance companies are required to overhaul their policies next year to ensure that they provide enough death benefits for policyholders, the Financial Supervisory Commission (FSC) said yesterday.
The commission on Tuesday announced the first rule, which set a minimum ratio for death benefits to policy account value.
A death benefit is a payment to the beneficiary of a life insurance policy when the policyholder passes away, while the account value is how much the investment account linked to the policy is worth, or the expected value the insurer would gain from investments using the premiums paid by the policyholder.
WEALTH MANAGEMENT
“While life insurance policies originally aimed to protect policyholders, they have become more of a wealth management tool, with many insurers promoting high survival benefits instead of death benefits,” Insurance Bureau Director Tsai Huo-yen (蔡火炎) told the Taipei Times by telephone.
Some savings-type policies that feature high survival benefits offer few death benefits, with their average death benefits to account value ratio slightly higher than 100 percent, Tsai said.
“That means insurers do not face high risks if the policyholder dies, as the death benefits are on average about the same as the expected return on investment of the account,” he said.
The new rules state that new policies should offer death benefits of at least 1.9 times the account value for policyholders aged 16 to 30, the age bracket that has the lowest risk of accidental death, Tsai said.
The minimum ratios are lower for older brackets, dropping to 1.6 for those aged 31 to 40; 1.4 for 41 to 50; 1.2 for 51 to 60; 1.1 for 61 to 70; 1.02 for 71 to 90; and 1.0 for policyholders aged 91 or older, he said.
Life insurers would need to redesign their product programs and recalculate the amount of death benefits and premiums according to the age of the insured, Tsai said.
For policies that mainly concentrate on survival benefits, such as savings-type policies, life insurance firms must increase the death benefits, which would buoy premiums, Tsai said.
“If life insurers do not wish to increase premiums, fearing that would scare consumers away, they must reduce the survival benefits so their policies adhere to the ratios,” he said.
IMPLEMENTATION
The rules would apply to all new life insurance policies sold after July 1 next year, Tsai said.
“We expect that life insurance policies will revert to what they were designed to be — protection, not investments,” Tsai said.
That might affect sales as people adapt to the changes, but in the long run it would ease the intense competition among life insurers, which had to take the high risk of overseas investments to offer high returns for policyholders, he said.
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