A look at life insurance in Japan
23 Nov 2023 | #japan | #moneyI’m starting a family, so I’ve been recently thinking about life insurance to ensure they won’t have financial hardship if I pass early. In this article I’ll review what I found. Please remember that I’m not a professional, and none of this is financial or tax advice. As always, do your own research.
Life insurance is a contract between a life insurance company and a policy owner. A life insurance policy guarantees the insurer pays a sum of money to one or more named beneficiaries when the insured person dies in exchange for premiums paid by the policyholder during their lifetime.
From investopedia.com
Unless otherwise noted, the comparisons below use me, a 30 years old man as the example.
There are multiple types of life insurance:
1. Whole Life Insurance (終身保険)
A whole life insurance never expires: you sign a contract, and as long as you pay the monthly premiums (which is usually a fixed amount), you will receive the defined amount at your death.
Since eventually everyone dies, with this type of insurance the insurance company is guaranteed to pay. This makes these plans more expensive than other plans, but can allow extra benefits like withdrawing from the policy while still alive or borrowing against it. (This is based on an American source, so it might be different in Japan.)
Looking at kakaku.com’s comparison for whole life insurance, the top 1 result pays 2 million yen at death and costs 2,508 yen/month. Assuming I die at the ago of 80, in the next 50 years this would make me pay 1,504,800 yen. This is lower than what the insurance pays due to the money loosing value over time (inflation) and as the insurance company likely invests this money.
The maximum amount kakaku can filter for is 10 million yen which returns a single insurance with 14,620 yen/month contribution.
2. Term Life Insurance (定期保険)
Term life insurance, as the name implies, is only good for a certain period of time, e.g. 10, 20, 30 years. You pay a monthly premium during this time, and if you die during this time, then your beneficiary receives the predefined amount of money. If the term passes and you are still alive, then the contract ends and you don’t receive anything.
This type of insurance can be pretty cheap for young people, as most policy holders won’t die during the term, so the insurance company can use all of their contributions to pay out the small amount of people that died. This insurance also matches my needs better: I want to take care of my family until our kids become independent.
The top result on kakaku is for 10 years, pays 10 million yen in case of death and costs 1,068 yen monthly. Note that the whole life insurance for the same amount costs 14,620 yen/month, more than 10 times more.
As the term increases, the chance of policy holders dying also goes up, resulting in increased monthly costs. For example a 25 year term insurance (going until I’m 55) would cost 990 yen/month, but only pay 5 million yen (half than the 10 year term).
3. Income Protection Insurance (収入保障保険)
This seems to be more common in the UK and Australia, but not so much in the US. My understanding is that this is similar to a term life insurance, but instead of paying out a lump sum at death, it provides monthly payments to the beneficiary (usually until the end of the term).
There is an important concept here called 確定保証期間 (guaranteed coverage period). Normally these insurances pay the benefit under their term ends, but if you die close to the end of the term, this guaranteed coverage period ensures that the beneficiary receives the benefit for at least this long. For example, if the insurance period is 10 years and you die in the 9th year, but the guaranteed coverage period is 2 years, benefits will be paid for 2 years. If you die in the 7th year, then the benefit is paid until the 10th year, so for 3 years.
Also some of the income protection insurances will pay you if you become disabled or otherwise unable to work (not only in case of death).
The major benefit of this insurance is that it maps the need (taking care of one’s family) better, especially if one dies early. On the other hand, the chances of dying early are pretty low, so the insurance company can keep the fees lower than a comparable term life insurance.
Again at kakaku the top result has a period until 65 (25 years long), has a benefit of 100,000 yen per month and costs 2,072 yen monthly. This has a guaranteed coverage period of 2 years.
Going for a higher benefit amount, kakaku tops out at 150,000 yen for 3,003 yen (also running until the age of 65).
Sony Family Income Insurance (ソニー生命の家族収入保険)
The income protection insurance seem to cover my needs the best (having a monthly payout until the kids become independent, regardless of when I die), so I looked into it more and found one offering from Sony called 家族収入保険. There is no online calculator (one has to signup for an online consultation), but their example has these numbers for a 25 year insurance period, 200,000 yen monthly benefit and guaranteed coverage period of 5 years the permiums are as follows:
| 30 years old | 35 years old | 40 years old | 45 years old | |
|---|---|---|---|---|
| man | 4,100 yen | 5,800 yen | 8,460 yen | 12,580 yen |
| woman | 3,260 yen | 4,380 yen | 5,760 yen | 7,720 yen |
The cost goes up pretty quickly with age which makes sense, as the length of insurance being the same, the end of the coverage gets pushed higher and higher from 55 years to 70 years making it much more likely that people will claim it.
Sony also has extra discounts for being healthy, along two categories: non-smoker (非喫煙者) and healthy body (優良体). Their example for this (source, bottom of page 3) assumes starting at 35 years old, 25 year period (so until 60), 250,000 yen monthly benefit and guaranteed coverage period of 2 years:
| Non-smoker with healthy body | Non-smoker standard rate | Smoker with healthy body | Smoker standard rate | |
|---|---|---|---|---|
| man | 6,425 yen | 7,825 yen | 7,800 yen | 9,200 yen |
| woman | 5,250 yen | 6,250 yen | 6,250 yen | 7,225 yen |
So both not smoking and passing their healthy body test reduces the premiums by ~15% each, with one passing both saving around 30% (27% for women).
To buy Sony’s life insurance, one has to have to meet their “Life Planner” (either in person or online) who will assess their situation and (supposedly) recommend the best solution from their portfolio. On their website they say that the initial consultation is free and one does not have to sign up to an insurance with them.
A Japanese blog notes that while on price alone Sony is not the best (even with the discounts), but this free consultation (which continues throughout the term of the insurance) can make it a good choice for some.
(I’m not sure if Sony’s insurance is the best choice, I just happened to look into it more and found the way the premiums change interesting.)
My conclusion
Overall my takeaway is that the Income Protection Insurance (収入保障保険) matches my needs the most, but also that this needs to be considered in a wider life/financial plan:
- many mortgages have a built-in life insurance - so if the owner dies, the remaining mortgage gets cancelled
- the needs of the extended family. Do you need to support your parents (and others) financially, or could/would they likely step in and help your spouse out if you pass?
- your and your spouse’s investments - after considering inheritance taxes, how far would these get your family?
- the income of your spouse (and their income prospect, in case of small kids at the moment)
Considering all of this, you might realize that you don’t really need insurance after all. And as with all financial decisions, discuss it with your spouse and make a decision together.