Chapter 4 Research Findings and Analysis
4.2 Exploring commercial annuities insurance under the labor insurance system
This study focuses on the role and relevant functions played by commercial annuities insurance under the current labor insurance system. Interviews comprise of reasons of interviewees buying commercial annuities insurance and discussions on issues pursuant to differences between commercial insurance and labor insurance system, as well as directions for improvements in the future. At an interview about buying commercial annuities insurance and reasons for buying, boss Liu of an Iron and Steel Company mentioned that:
In the beginning, I primarily bought health insurance, critical injury insurance, cancer insurance, prolonged medicare insurance, accident insurance, or other annuities savings insurance, etc. In addition, I also would take into consideration buying commercial insurance for salespersons with tax conservation in mind. Particularly, I dare not overlook risk in business. I have to avert risks through buying insurance commodities and I also have to consider inheritance by the future generations and other issues.
But Dr. Chen mentioned:
Ｉbought health insurance, cancer insurance and accident insurance for myself in terms of wealth management and tax conservation. Aside from health and accident insurance, I also would like to buy relevant commodities related to wealth management and tax conservation including Investment- type insurance. Since I, myself, am in the medical field, I’m sure to be aware of the frailty of life. Furthermore, commercial annuities insurance is one of the wealth management tools to be taken advantage of.
Henceforth, for high-income families including enterprise owners or doctors commercial insurance provides various functions and acts as protection against risks.
It can take care of health protection, wealth planning, retirement planning and tax conservation, etc. Hence, compared to labor insurance and national pension insurance, reliance on commercial insurance is not so heavy. Except that personal income may
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already be sufficient for early retirement, commercial insurance provides various other functions including wealth management or medicare.
Whilst teacher Chen mentioned:
Initially, I bought commercial annuities insurance because the salesperson was a friend I knew. Additionally, I was introduced by friends to the basic health insurance, and wealth management type insurance.
Also, I bought health insurance, accident insurance, hospitalization insurance, annuities insurance, etc. I bought those insurances primarily because of preparations against various risks in life including medicare and old age economic safety.
And engineer Yan said:
Aside from providing better protection than social insurance, I primarily bought health insurance and foreign currency insurance. Another consideration is the higher interest rate in comparison to regular time deposit. Therefore, aside from investing in stock and other financial commodities, commercial insurance has turned into one of the most mandatory savings tools.
Henceforth, to regular middle class or median income families, they would seek balance in accident insurance, health insurance, and investment-type insurance (including savings and foreign currency insurance, etc.) as sources of income. For more stable living quality, commercial insurance could possibly add sources of income in addition to job or maybe utilize commercial insurance as a mandatory savings tool and use it as a source of retirement fund. To them commercial insurance and regular labor insurance probably may not be the only source of income after retirement. Possibly, they also make investment in stocks and other tools to make up for the shortfall.
At the interview, Mr. Wu, who works in the factory, said:
I mainly bought accident insurance and health insurance so I don’t have to pay so much myself. Moreover, the company has bought group
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insurance for us. Therefore, basically I don’t need to buy so much insurance. I cannot think in an all-round way because of my limited income.
Naturally, in comparison to other median and low-income families who are in economic straits, they rely more on social insurance though they are in more need for commercial insurance (for instance, higher self-paid expensive drugs for hospitalization or other unpaid items). As such their investment in commercial insurance would be considerably less.
Moreover, presently retired Ms. Zhang said:
Aside from buying insurance for health, accident and life (including working group insurance and additional self-paid portions), I also would buy commercial insurance such as short-term savings insurance or foreign currency insurance, and investment-type insurance. Unlike labor insurance, usually you would make more investment in commercial insurance; for instance, you would at least set aside NT$10,000 for the monthly investment-type insurance. Moreover, you would also invest on an irregular basis certain savings insurance or make investment by observing bank interest rates, foreign currency exchange rates and buy foreign currency insurance as investment. Presently, my retirement living quality is not bad and I don’t feel so much pressure now.
To Ms. Zhang, who formerly worked for an institution, and who generally enjoyed higher income than the middle class, she was naturally more active in buying commercial insurance primarily for better deployment of her retirement life. Hence, after retirement she has made some investment and other retirement investment, as well as acquisition from commercial insurance, in addition to basic income from labor insurance and labor pension. She was better off in capital utilization and she could sometimes help out her children in buying apartment and vehicles instead of adding burden to them. Furthermore, both boss Liu and Dr. Chen mentioned the difference between commercial insurance and labor insurance as follows:
There’s no free lunch. Since you’ve to pay comparatively more for commercial insurance, protection is therefore more complete and you can
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have more flexibility in buying the type of insurance you prefer and with voluntary effect. For instance, in buying investment-type insurance you can choose yourself buying what type of funds, etc. or foreign currency insurance, etc. or pay attention to the international financial development trends and buy certain insurance policies. But for annuities insurance you have to consider the interest rates and whether insurance claims meet your personal requirement.
To high-income families, they usually are in contact with high-asset families, or comparatively show more attention to international economic development trends and issues, thereby they are more sensitive to financial wealth management issues and naturally would buy foreign currency insurance policies, investment-type insurance policies in combination with funds or other more competitive annuities insurance types, etc. Of course， they would invest in stock, properties or certain valuable assets as preparation for retirement. Since they have relatively adequate assets, they tend not to place all eggs in one basket.
Teacher Chen said:
Generally, labor insurance provides only the most basic protection. I usually show attention to certain foreign currency insurance policies on an irregular basis and felt satisfied with profits. I consider buying annuities insurance because interest rate is relatively better off.
Engineer Yan mentioned: I probably spend more on buying insurance, for instance, for labor insurance the employer only appropriates 6% of the payroll or approximately NT$2500 while I personally invest about NT$10,000 on financial wealth management commodities. Of course, I expect more in terms of protection or compensation.
Hence, to the middle class its expectation for commercial insurance is to maintain a standard of living above a certain level after retirement, in comparison to
“additional” income opportunities from basic protection.
Mr. Wu said:
Commercial insurance should provide more complete and better
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protection than that from the government; otherwise, it is unnecessary to buy with additional money. For instance, in the event of accident or death, you can have more financial subsidies, or leave more to the future generation, or like time deposit insurance, etc. Staying one day more you can get an additional thousand or two thousand dollars. This is most helpful when you’re out of work.
Compared to the low-income earners, they usually tend to buy comparatively short-term insurance policies such as accident or time deposit insurance types with relatively lower premium in the hope of certain compensation for certain circumstances. However, this is relatively inadequate overall and in the event of cancer could cause dire economic difficulties for the low-income earners. Finally, in discussing about commercial insurance and issues related to future insurance, boss Liu mentioned:
Principally, we have to take into account the development trend of the time. For example, rising medical expenses and the aging trend, etc. In the wake of inflation, money will buy less and less. Therefore, if annuities insurance can provide comparatively better interest rates or rightly targeted on the syndrome, such insurance may become more competitive in the time of thin profits.
Dr. Chen added:
In the future, medicare for the aged will become popular. Whilst insurance related to dental care premium is by no means low. There may be other requirements which industry operators may also take into consideration.
Hence，dwelling on the interviews of corporate boss or physician, they would pay more attention to commercial insurance and return to wealth management requirements or dental insurance, etc.
Teacher Chen pointed out:
Presently, the trend of having fewer children plus the trend of aging, as well as a rise in chronic diseases, commercial insurance in the future will be developing prolonged medicare insurance. This is precisely an
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inadequate field of medical insurance under current specific conditions.
Engineer Yan noted:
Direction of improvement for commercial insurance in the future:
Following lower and lower interest rates, commercial insurance also pays less and less. It is hoped that insurance operators develop more favorable commodities and attract the public buying in combination with basic medical insurance and comparatively products with higher interest rates;
otherwise, the public may be attracted by other financial commodities or substituted.
To the middle class they would pay more attention to the current social trend of having fewer children and aging, particularly prolonged medicare insurance related to early retirement and the risk of a longer life.
Additionally, presently retired Ms Zhang pointed out:
In observing the rising commercial insurance premium in recent years, the low-income younger generation would be in more difficult situation.
Hence, it is important to design insurance policies with comparatively higher interest rate than government or bank units and can control within reasonable pricing range. Though I have certain retirement capital planning, I also worry about prolonged medicare insurance because of widespread chronic illnesses.
Overall, most expectations for commercial insurance in the future focus on prolonged medicare insurance in anticipation for the trends of having fewer children, aging and modern chronic illnesses. It is expected that the government can formulate corresponding policies, including prolonged medicare insurance policies including introduction of healthy villages for the elderly. Such shall be the direction for integration in the future.
And Mr. Wu noted:
Basically, it’s a matter of returning to actual daily living. Recently, all commodities rose in price including insurance premium. With limited
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budget in the future, it is better to provide fair insurance policies, otherwise “there will not be stored food for the future if not sufficient raw food for the present.”
Therefore, to comparatively low-income families their concern is to meet basic subsistence with limited budget. Few can concomitantly take care of everyday living and retirement planning while working. Most people have to rely on government social insurance for a better retirement living standard.
In summation, for families with different incomes, their investment in commercial insurance would differ. Of which, for high-income earners, deployment for medical insurance of commercial insurance would be more comprehensive.
Generally, they comprise of medical insurance, critical injury insurance, cancer insurance, prolonged medicare insurance, accident insurance, etc. Moreover, they would also engage in annuities savings insurance and investment-type insurance with tax conservation. However, median income-earners would engage in important medical insurance or wealth management insurance policies pursuant to their financial capability. In particular, they usually can accept the concept of the insurance iron triangle including accident insurance, medical insurance and investment-type insurance (including savings) and strike a balance.
Furthermore, to the comparatively low-income earners, they usually live on a limited budget. Hence，they pursue basic medical insurance and pay less attention to overall wealth management and comprehensive insurance. To them, any changes or risks to the old age annuities system of the labor insurance system could have greater effect on them. Henceforth, to families of different income levels, the role and function played by commercial insurance would differ. Generally speaking, to families who engage in commercial insurance, they usually hope for additional or
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more complete and varied protection or other wealth management requirements under the government labor insurance system.
In addition, the latest development of commercial insurance in Taiwan is as follows:
1. Annuities insurance has gradually become a tool for pursuing corporate welfare:
Presently, certain enterprises have commenced using commercial insurance by installment as a source of salaries and welfare for attracting talents. Its operation skill is to use the company as the insured, and award employees with additional welfare appropriation according to performance. However, upon expiration of a number of years, the employee would become the insured for retirement life protection. However, if the employee leaves the job, the company can retrieve the severance bond. Hence, the enterprise can fully utilize the commercial insurance as a tool for providing basic protection to employees. Such are the advantages for the enterprise in retaining talents and making flexible planning. Moreover, since receipt from insurance premium and salaries differ, it is unnecessary to pay comprehensive income tax or have the concern of diluting the equities of major shareholders through stock options and bonuses. Also, it gives employees more protection of retirement life.
2. Future development of prolonged medicare insurance: President Ma Yingjeou has attached importance to the issue of prolonged medicare over the years primarily because of anticipation of the aging society. The Ministry of Health and Welfare has drafted prolonged medicare insurance. The draft has the government, employer and worker jointly share the insurance premium which subsequently lessen the economic burden of families. Moreover, for example, in the future the Finance Ministry will formulate within a reasonable range prolonged medicare insurance for the elderly or set forth a deduction amount for comprehensive
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income tax including expenditures for “annuities insurance” and “prolonged medicare insurance” with a tax deduction amount of NT$24,000. It requires enterprises to insure each employee a year with a tax deduction amount expanding from NT$24,000 to NT$82,000. Enterprises are encouraged to buy group annuities insurance for employees. This is major bonus information for prolonged medicare insurance among commercial insurance. However, relevant industry operators should formulate a reasonable range of insurance premium for the future, and allow the public having the new concept of buying prolonged medicare insurance from among the host of insurance products. Indeed, this is a major challenge to prolonged medicare insurance.
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4.3 Summary
Presently, the old age annuities of the labor insurance system in Taiwan mainly provides economic backup for retirees. Additionally, it also flexibly gives the option of delaying or advancing pickup of annuities according to the worker’s retirement planning, as well as designing inheritance annuities (or survivor pension) so that the dependents of retirees who conform to the inheritance requirements can receive the annuities if the insured pass away during the effective insurance period, or if they pass away when they are still eligible to receive old age pension or disability pension. This assures prolonged living protection for dependents of the insured and conforms to the guideline of social security. However, the government labor system is designed for the general public and is bound to have shortfalls in the system.
Take for example the national pension insurance, we find that throughout relevant documentary data and interview, the intention of the pension insurance is to incorporate the unemployed, housewives and students into national insurance.
However, such people lack sources of income and would add additional burden to the family. In particular, because national insurance is a voluntary system where
husbands and wives have the obligation to pay for insurance premiums for each other, the National Annuities Sales Division of the Labor Insurance Bureau can mete out fines to the other party and enforce execution in the event of arrears in payment.
This surely aggravates the situation of the inharmonious married couples.
Additionally, in light of commercial insurance, different incomes leading to diverse income substitution rate and cognition of risks would affect insurance buying.
Generally speaking, high asset clients and low asset clients have varied security feeling about finance and risk protection. To low-asset clients in particular, they usually do not have surplus money for wealth planning since they are living on a
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subsistence level. But for high level clients, they would consider saving tax and leaving inheritance to the future generation aside from an all-round medical protection.
So for high asset clients including entrepreneurs or dentists or physicians, they may not incorporate their payroll into the tax deduction slip since they might transfer tax in other ways.
To high asset clients one of the purposes of purchasing commercial insurance is to save tax. The Modern Insurance Magazine (2014) pointed out: Among the various financial and wealth management tools, insurance has a strong function of saving tax. Aside from a tax deduction amount of NT$24,000 each year for insurance premiums, insurance payment can permit transfer of assets and further save inheritance tax, etc. In recent years, the National Taxation Bureau also started to pay attention to the “real taxing principle” and mete out fines to the public for tax evasion.
For example, upon signing of the insurance contract, wanton change of the insured and beneficiary can involve provisions of the income tax ordinance, income basic tax ordinance, and regulations of the inheritance tax and gift tax. The insured should follow relevant taxation regulations in terms of change to the contract. In practice, insurance premiums can be deducted from tax only if the insured and the insurer have filed application. According to provision 2, item 1, Article 17 of the Income Tax Ordinance, the tax payer may file for NT$24,000 of tax deduction annually from life insurance (including life insurance, health insurance, injury insurance and annuities insurance), labor insurance, national pension insurance, military and civil service and teachers insurances of the payer, spouse and dependents. However, if the beneficiary and the insured are not the same person, all insurance payments will be counted into basic income. Moreover, if change of the insured or beneficiary is an act of gift then insurance payments also must pay inheritance tax since insurance has financial value.
Nevertheless, to the median and low-asset public, the primary function and
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purpose of insurance is to pay insurance premiums on a regular basis so that in the event of payment expiration or accident of the insured, the beneficiary of the
purpose of insurance is to pay insurance premiums on a regular basis so that in the event of payment expiration or accident of the insured, the beneficiary of the