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** Insurance: You'll get scammed if you don't know this (Part 8). (Whole Life, Term, and Death Insurance) **

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*‌ Since this is an informative post with a lot of content, I have written it in a casual tone. I would appreciate your understanding...
Last time, we finished talking about personal insurance and I said I would explain driver's insurance, but I've returned to personal insurance immediately... Today, I want to talk about whole life insurance. Whole life insurance often has a bad reputation because it is one of the types most prone to mis-selling, but if you understand it properly and use it correctly, it can be a very high-value insurance, so it's important to make a good judgment!
First of all, thinking that Whole Life Insurance = Death Insurance can be incorrect. The term "whole life" means there is no fixed maturity date and it covers the customer for their entire lifetime. In the past, this meaning only applied to death insurance, so whole life insurance is often linked to death insurance. However, life insurance companies also offer health insurance, such as cancer insurance, with whole-life maturity, so there can be whole life insurance that is not death insurance!
The main reason people speak negatively about death insurance is by asking, "What's the point of receiving money after I die?" However, you can use whole life insurance even if you do not die. Have you heard about the Financial Supervisory Service's talk about converting whole life insurance into an annuity? It refers to converting the death benefits of previously joined whole life insurance policies into annuities. Recently, whole life insurance basically includes annuity functions, so you can receive death benefits and later, if you want, use it as retirement funds.
Of course! It has annuity functions, but that absolutely does not mean that whole life insurance, which is death insurance, is an annuity. It is not a savings product; it is a protection product intended for death, but it would be good to understand that various options exist. Because of this function, many places mis-sell whole life insurance as if it were a savings product or an annuity... Many problems arise when people sign up after hearing it explained like a savings account, so you must understand and use this structure accurately.
While being able to convert whole life insurance into an annuity that exceeds the amount paid later is very useful, I think it would be good to focus on the death benefit itself. If you ask me what the meaning of money coming out after I die is, I want to answer that it has an immense meaning. I am currently unmarried and have no children. However, I hold hundreds of millions of won in death benefits, and I plan to keep accumulating more.
If I die now, my parents would receive it, right? My parents are civil servants, so retirement is not an issue for them, but if something were to happen to me, they would be incredibly sad, but if the death benefit is paid... honestly, I think it would be a huge help. What if they don't need that money? I have one younger brother, so he would receive it. Wouldn't that be a huge help in purchasing a house when he gets married?
If I die after getting married, my wife will receive this money. First of all, we would likely have taken out hundreds of millions of won in loans to buy a house to live in together, and since I would die without being able to pay it back, my death benefit would be needed to repay the loan. Even if debt isn't the issue, we would have to raise children together, and I would need to earn for their tuition; I think my death benefit will play a very large role in various living expenses.
Even for my children, I should be able to pay up to their college tuition, and if something happens to me, the death benefit will fulfill that role. Are you asking why I'm preparing death benefits for something that hasn't even happened yet? Of course, I also hope these things never happen, but if they do, my death is what would cause great problems for my family. That is why I am preparing. It's good if it doesn't happen, and it's a huge help if it does.
You might think, "I'll prepare after I get married and have kids~," but insurance is always cheaper the younger you sign up. If you are going to prepare anyway, you should sign up early to prepare more cheaply. (Even with the same premium, you get more death benefits and a higher refund rate).
So, you protect yourself and your family with death benefits during your economically active years, and when you retire, you convert it to an annuity to use in your old age. Since it is insurance, any profits generated can be received entirely tax-free, and if you prepare from a young age, the refund rate is very high. Interest-rate type whole life insurance returns about twice what you paid, but variable whole life insurance, which is managed through investment, can expect very high returns if invested for the long term.
In the insurance design document, it says it returns about 3 times the amount assuming a 3.75% annual return, but currently, my refund rate is reaching the target 3 to 4 times faster than the design document (if it reaches the refund rate in 5 years that was supposed to take 20 years, it is expressed as being 4 times faster). So, if it continues like this, I am expecting about a 10-fold refund. Moreover, since it is insurance, the profits generated are entirely tax-free. Overseas investment (QQQ, SPY) is also possible, which exempts the 22% capital gains tax (Please take this as a simple reference only, as the refund rate varies depending on the rate of return and the age of enrollment).
If I can continue to earn money healthily in the future, I will live while having a positive influence on my family and friends, but if I die prematurely, I won't be able to earn the money I would have earned in the future, so you can think of it as preparing for the loss of future income with death benefits. If it's whole life insurance, you can get it back later anyway, and if it's term insurance, it's extremely cheap anyway.
I believe death benefits are a form of responsibility. Everyone dies eventually. I think the role of insurance is not to increase success when things go well, but rather, my life could be a plus or a minus in the future, and the role of insurance is to reduce that minus and ultimately make it zero. It is about preparing so that in any case, my life only has the path to get better and does not retreat. Then someone might say that the speed of improvement will decrease because of the insurance premiums. However, I think it is more important not to go backward, even if it is a bit slower. Just as someone who experiences a windfall keeps making risky investments and eventually loses everything, in this one-time life, I think it is more important not to go backward than to go far. (Of course, this is just my opinion!)
Then, what are the ways to prepare death benefits? There are whole life insurance and term insurance. Whole life insurance provides coverage for your entire life until you die, and since people eventually die, you can see it as insurance that pays out death benefits 100% of the time. Whether I live a long time until 100 or die early after signing up, it will definitely pay the death benefit. Also, whole life insurance has the characteristic that the surrender value becomes more than the principal after the payment period and continues to accumulate. Since the insurance company must eventually pay the death benefit, it is good for the insurance company even if they pay more than the principal as a surrender value if the customer cancels.
On the other hand, term insurance provides coverage only for a fixed period. For example, if the coverage period is set until age 60, the death benefit is paid if death occurs before age 60, but if you survive past age 60, the insurance expires when the 60-year maturity is reached, and the money paid during that time also disappears. Instead, you can prepare death benefits much more cheaply than with whole life insurance.
So, which of the two is better? There is no answer here. There are those who use term insurance without burden, even though it has a structure where the premiums paid disappear if you do not die, meaning there is a possibility of not receiving it if you live long. There are also those who might use whole life insurance if they want to leave a 100% guaranteed death benefit to their family despite higher premiums, or if they want to use it as a large sum of money later while preparing for an unexpected death.
Alternatively, some use whole life insurance for inheritance purposes. This is a method officially recommended by the National Tax Service. If I explain this too, it will be too long. Today, I should only explain whole life and term insurance! I will probably continue the whole life insurance series. There are differences in products based on management methods, and I think it would be good to explain the methods of annuity payment as well.
That's all for today! Since both whole life and variable whole life insurance might have very bad perceptions, I have attached an image of the actual surrender value of the whole life insurance I am currently operating. I have maintained a 20-year payment product for 79 months (about 6 and a half years), and the refund rate is 139.9%. You probably heard that the refund rate barely exceeds the principal after the payment period is over, but since this is a variable insurance managed through investment, the refund rate is already more than the principal even within the payment period.

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