Insurance Daily | July 2023
The flight from life insurance policies seems relentless. In the life department, the relation between redemption fees and insurance premiums knows no limits: at the end of March, it reached an average of 85%, as compared to 53% in March 2022.
In fact, while redemption fees have increased by 57%, insurance premiums have decreased by 4%.
There are several reasons behind such flight.
First of all, policy holders are currently in need of a greater amount of liquid assets to cope with the record-breaking inflation and recessive economic scenario.
Secondly, several policy holders perceive government bonds and in particular long-term treasury bonds (i.e., BTPs) as a more profitable alternative to insurance-based investments.
In this sense, the Eurovita affair has certainly thrown shade on a sector in distress, despite its happy ending.
As evidenced by the latest report on financial stability published by Banca d’Italia, financial advisors and banks are the main victims of the flight from life insurance policies which started earlier in the year.
In particular, the offer has been unable to explain the difference between financial investments and life insurance policy.
In event of the policy holder’s premature death, life insurance ensures financial protection to his/her loved ones.
A policy holder with family should take this element into account. Moreover, some life insurance policies, such as Universal life and Whole life, also include saving or investment elements.
This means that part of the paid premiums contributes to building a redemption value which can increase in time. Finally, in many countries including Italy, premiums are tax deductible and the sums dispensed to recipients are tax-free, including inheritance taxes.
For example, life insurance policies with separate management of deposited regular premiums allow the policy holder’s relatives to maintain the same standard of living in the event of death.
This kind of insurance policy suits single-income families, people who have taken out a mortgage on their house or have dependent children, as well as companies.
Indeed, it is possible to insure a person playing a key role in the company.
All insurance products should be understood, explained, and offered to individuals who can benefit fully from them.
However, the feeling is that, in many cases, these policies have been sold and subscribed only for what was believed to be a satisfying profit and guaranteed capital.
Trading with these products, that is acquiring or selling them, in an opportunistic way and solely on the basis of profit does not mean having understood their true nature.
The time horizon, the composition of the family, the financial situation of the family are to be taken into account for trading life insurance policies correctly.
It is a real pity that a proactive and dynamic sector such as the field of financial advisors and banks is being affected.
After all, those who only spread profit are inevitably collecting only ransoms. Vice versa, those (and there is many) who did their job well know that protection is something different.
Nicola Ronchetti