1. Significance of Insurance
"What is insurance?"
“Insurance refers to a system in which multiple economic entities exposed to a homogeneous risk pay costs (insurance premiums) and transfer the risk to a third party (insurance company) to recover the damage in case of damage. I do."
Insurance is a system in which insurance premiums are stored with a trustworthy person (insurance company) in preparation for risks such as accidents, injuries, diseases, death, and old age, and the insurance money is paid when the insured is in danger. An insurance contract becomes effective when one of the parties pays the agreed premium and the other party agrees to pay a certain amount of insurance money or other benefits in the event of an undetermined accident to property, life, or body.
Insurance for such risk protection is sometimes handled by private insurance companies, but the government directly manages the parts that require benefits for all citizens or the private sector cannot handle. , industrial accident insurance).
Public insurance (National Pension, Employment Insurance, Health Insurance, Industrial Accident Insurance) is mandatory by law and cannot be regarded as a financial product handled in the market.
2. Types of insurance
"How is insurance classified?"
"Insurance is divided into public insurance and private insurance depending on the type of management entity, life insurance, and non-life insurance depending on whether the subject of insurance is a person, protection-type insurance and It is classified as savings-type insurance and depending on the nature of the product, it can be classified into term insurance, life insurance, variable insurance, universal insurance, personal pension insurance, loss insurance, etc.”
Public and Private Insurance
Insurance business can be divided into public (social) insurance and private insurance according to the type of management entity.
Public insurance refers to insurance in which the state, local government, or public institution is the subject of the insurance business. Currently, public insurance includes National Health Insurance, National Pension Insurance, Industrial Accident Compensation Insurance, and Employment Insurance.
In addition, economic policy insurance includes export insurance, agricultural insurance, and forest insurance.
Private insurance refers to private insurance under the management of the insurance business. According to the purpose of private insurance, there are four main types: private enterprise organizations and corporation organizations for for-profit purposes, and mutual company organizations and cooperative organizations for non-profit purposes.
Private insurance is divided into life insurance and non-life insurance according to the subject of the insurance.
Here, we briefly explain the four major types of public insurance that must be purchased by law.
(1) National Pension
The National Pension Service was introduced in 1988 by the National Pension Act and is managed and operated by the National Pension Service as a system that guarantees a certain amount of income when the insured cannot engage in income activities due to old age, etc.
The national pension is subject to the mandatory application of all economically active populations aged 18 to 60, except for public officials, military personnel, and private school teachers, to which special occupational pension is applied. In the case of wage earners who are working, they and the company each pay 4.5% of the amount equivalent to 9% of their income, which is withheld from their monthly salary.
Local national pension subscribers, such as the self-employed, must pay the full 9%. The subscription period is 10 years or more, and the payment age is from the age of 60, but it is gradually increased, and from 2033, the payment can be received from the age of 65.
Representative types of pension benefits include old-age pension, disability pension, survivor's pension, and lump-sum refund, and in the case of 20 years of subscription, the average pension amount is about 40% of the final salary.
(2) Employment Insurance
As a system that came into effect on July 1, 1995, it aims to carry out unemployment and employment stabilization projects and vocational competency projects and is managed and operated by the Ministry of Employment and Labor.
Workers can receive unemployment benefits up to 50% of the total wage (up to 46584 won per day) depending on their age and insurance coverage period. it is decided However, in the case of voluntary retirement, etc., unemployment benefits cannot be received.
Employment insurance is divided into unemployment benefits, employment stabilization projects, and vocational competency development projects.
In the case of unemployment insurance, employers and workers each pay 0.65% of their wages, and a total of 1.3% is paid to the Ministry of Employment and Labor.
(3) National Health Insurance In
In order to prevent excessive burden on the household due to high medical expenses incurred due to illness or injury, the public usually pays insurance premiums, and the National Health Insurance Corporation, the insurer, manages and operates it, and pays insurance benefits when necessary.
It is a social security system that allows citizens to share risks and receive necessary medical services. National health insurance subscribers must pay health insurance premiums and long-term care insurance premiums.
For health insurance premiums, employees pay 6.12% of monthly remuneration for employees, and the employer share 50% of each. For local insurers, 179.6 won is applied based on the number of points imposed based on income, property, automobile, etc. pay with Long-term care insurance premiums are 6.55% of the health insurance premiums for all employers and local insurers.
The reduction rate for health insurance premiums is applied to remote residents, military personnel, and those on leave, and long-term care insurance premiums are reduced for the disabled and those with rare incurable diseases.
(4) Industrial
Accident Insurance Industrial Accident Insurance is Korea's first social insurance system introduced in 1964 to protect workers from industrial accidents, and is managed and operated by the Korea Workers' Compensation and Welfare Service.
In case of injury or death as a result of an industrial accident, it is compulsory insurance that protects or compensates the injured worker or his/her family.
The state collects insurance premiums from employers and uses the funds (resources) to compensate workers for industrial accidents on behalf of employers. Industrial accident insurance rates vary by industry type. In 2017, the average insurance rate was 1.70%, the lowest in the financial and insurance industry at 0.7%, and the highest in the coal mining industry at 32.3%, and the business owner paid.
Life Insurance and Non-Life Insurance.
There is a difference between life insurance and non-life insurance. First, in terms of the nature of insurance, life insurance, in principle, is a saving that pays the contracted insurance money to the policyholder after a certain period of time has elapsed or when conditions such as death are met, regardless of whether or not damage is caused by the occurrence of an insurance accident.
Non-life insurance, on the other hand, has a strong nature of protection. In addition, life insurance assumes that the insured person's value is infinite, and the loss of the insured cannot be calculated. compensate the actual damage suffered by
(1) Life insurance
Life insurance refers to a contract that promises to pay money and other benefits stipulated in relation to the survival or death of a person for the purpose of risk protection and accepts consideration.
Life insurance is generally divided into individual insurance and group insurance based on the insured.
(A) Personal insurance
Personal insurance is classified into survival insurance, death insurance, and life-and-death combined insurance (old-age insurance) depending on the cause of the insured accident.
Survival insurance is a product that pays insurance money only when the insured survives until the end of the insurance period. It is insurance with strong savings potential to secure financial resources necessary for the future, such as education funds, marriage funds, and business funds.
Survival insurance is not provided independently in Korea because survival is not guaranteed for the duration of the insurance period after the insurance premium is paid.
Contrary to life insurance, death insurance is insurance that pays out when the insured dies or a first-class disability occurs during the insurance period.
Accordingly, if the person survives until the expiration date of the insurance period or does not suffer from a first-class disability, the insurance money is not paid and the premium paid is not refunded.
Death insurance is divided into term insurance, which pays insurance money when the insured dies within the insurance period with a predetermined insurance period, and life insurance, which pays insurance money even if the insured dies at any time without a fixed period.
Since there is no refund of maturity insurance, such death insurance has the advantage of providing relatively high insurance in case of death or first-class disability at low premiums.
Life-and-death hybrid insurance is insurance with both protection and savings properties, which pays a death benefit if the insured dies during the insurance period and pays a contracted amount if the insured survives until the end of the insurance period. It is called life-death hybrid insurance because it has the characteristics of both life insurance and death insurance.
(B) Group insurance
Group insurance is group insurance in which some or all of the group members who meet certain conditions are insured. It is used as a welfare system for corporate employees, and insurance benefits are paid in the event of an employee's death, accident, or retirement.
Employee Retirement Savings Insurance, a type of group insurance, alleviates the temporary economic burden of companies due to severance pay and guarantees severance pay, which is the legal wage of workers, is social security-type insurance.
(2) Non-life insurance
Property and liability insurance is a contract that promises to pay money and other benefits for damages caused by accidental events, excluding diseases and injuries, for the purpose of risk protection and accepts consideration.
Non-life insurance is a social system with mutual protection nature to jointly deal with the risk of property loss due to various accidents such as fire and automobile accidents.
In general, there are many types of insurance, such as fire insurance, marine insurance, automobile insurance, guarantee insurance, liability insurance, technology insurance, title insurance, theft insurance, glass insurance, animal insurance, nuclear energy insurance, weather insurance, etc.
Since a non-life insurance contract is for the purpose of compensating for damage, there must be an insurable interest to take the loss into question as a premise for the compensation for damage.
In other words, the insured profit is the economic benefit of the goods subject to the insurance contract. The insured amount refers to the maximum amount of the insurer's benefit obligation set by the parties at the time of conclusion of the insurance contract, and the insured value refers to the monetary value of the insured profit.
Non-life insurance is a type of damage compensation system and does not actively provide any benefit to the insured due to an insured event. Accordingly, the maximum amount of compensation to be paid by the insurer is determined by the insurable value and the scope is limited by the insured amount.
All. Protection-type insurance and savings-type insurance
Insurance products are divided into protection-type insurance and savings-type insurance according to the nature of the insurance.
Protection-type insurance focuses on various risks, the original function of insurance, and can receive relatively large coverage in the event of death, illness, or various disasters with a low premium. Cancer insurance and accident insurance are examples.
Protection-type insurance is divided into pure protection-type insurance, which has no benefits paid during the lifetime, and refund-to-maturity insurance, which refunds premiums paid in case of surviving to maturity.
Savings-type insurance is a profitable product that has been developed to provide a large sum of money when the insurance expires. Interest rate-linked products such as annuity insurance, education insurance, and super financial insurance are representative.
In particular, if you subscribe to savings-type insurance that meets certain requirements for more than 10 years, you can receive tax-free benefits, so it is a product suitable for long-term preparation of large amounts of money or stable management of large amounts of money through basic risk guarantee and minimum interest rate guarantee. From April 1, 2017, non-taxation requirements for some long-term insurance gains have been strengthened.
Classification By-Product Nature
In order to understand insurance products, it is necessary to first understand the structure of the insurance company's accounting accounts and premiums.
An insurance company's account is structured similarly to that of a bank's bank account and trust account. A bank account is an account that carries out the bank's unique business of deposits and loans.
It is mainly operated centered on deposits and loan assets, and interest on deposits is paid under the responsibility of the bank. On the other hand, the trust account of a bank is an account in charge of the management of trust assets. It is managed separately from the bank's own funds, and each trustee (trustor or beneficiary) has rights only within the trust account.
An account similar to the trust account of a bank is called a special account in insurance, and the unique account of an insurance company is called a general account.
Insurance products that fall under the special account include retirement pension, retirement insurance, and variable insurance. Insurance products that fall under the general account include life insurance and death insurance, and the profits and losses from these are reverted to the insurance company, and the insurance company must pay the policyholder a set amount according to a pre-determined contract.
Unlike bank products, insurance products are not clearly divided by product and are managed in a mixture. For example, in the case of variable insurance, risk premiums and supplementary insurance premiums are managed in a general account, and savings insurance premiums are managed in a special account.
As a result, variable insurance guarantees a certain portion of the risk with the premium invested in the general account and allows the operating profit to be obtained from the premium invested in the special account.
(1) Term insurance and life insurance
Term insurance is insurance that provides monetary compensation for a limited period. There is standard term insurance, which guarantees a certain amount of death benefit during the insurance period, diminishing term insurance in which the death benefit gradually decreases, and continuous term insurance in which the death benefit gradually increases.
Whole life insurance is insurance that overcomes the shortcomings of term insurance, which is guaranteed only for a specific period and provides monetary compensation for the death of the insured person for the rest of his or her life.
Unlike term insurance, which has an expiration date, in the traditional concept of life insurance, when the insured dies, the bereaved family can enjoy the death benefit. In this case, a product is designed that allows the insured to receive a portion of the death benefit (approximately 50%) in advance.
Recently, annuity-type whole life insurance has been introduced to increase life expectancy and support living expenses in old age, which adds the characteristics of an annuity to life insurance. to be. For example, if the death benefit is 100, 60 of it is received monthly in the form of an annuity, and the remaining 40 is received as a death benefit.
However, it should be noted that, in the case of life insurance, if the contract is canceled in a short period of time, the principal loss due to business expenses, etc. may be large.
The biggest advantage of life insurance is that it covers a lifetime, and the downside is that the premium is expensive because it covers a lifetime. On the other hand, the advantage of term insurance is that the premium is more than 60% cheaper than that of whole life insurance.
(2) Variable insurance
Variable insurance is a kind of financial investment product that adds the function of investment to the function of insurance. Unlike flat-rate insurance, which guarantees a fixed interest rate, the amount of insurance varies according to investment performance.
Similar to indirect investment products in other financial institutions, the money trust or collective investment scheme (fund) of the banking sector in terms of investing and managing premiums that are part of the investment in stocks or bonds and distributing the profits to customers as performance results. similar.
However, due to the nature of insurance, variable insurance consists of a minimum death benefit, which guarantees a minimum amount regardless of portfolio management performance, and a reserve part whose value fluctuates according to investment performance.
In variable insurance, the premium refund varies according to the management performance because the customer voluntarily selects the asset management type according to their investment propensity.
The basic structure of variable insurance is to receive a portion of the premium from the general account and use it as risk insurance premiums (death insurance, annuity insurance, etc.) Special account management methods include stocks, bonds, and collective investment schemes.
Recently, ELS variable insurance that invests special account assets in ELS and products that invest in overseas securities have been launched. The operating profit and loss in the special account belong to the investor, so even if there is a lot of profit, the customer enjoys it all, and if a loss occurs, the customer is responsible for the loss.
Variable life insurance provides a certain level of death benefit even if the performance in the special account is poor with the main purpose of variable insurance as death protection.
There is variable annuity insurance that guarantees the pension of In the case of variable insurance, it is necessary to secure a financial plan that can be maintained for a long period of time, as there is a burden on the initial operating cost, etc.
(3) Universal Insurance
Universal insurance is a new type of insurance that started in the United States in the late 1970s. It is insurance that allows you to withdraw the premium paid within the scope of the cancellation refund amount and to temporarily suspend the payment of premiums if necessary.
For policyholders with irregular income and irregular income, the premium payment period can be adjusted during periods of a sharp decline in income or sharp increases in expenses, so there is no need to cancel prematurely.
You can use it to withdraw your refund, or use the additional payment function to make money. If you do not have enough funds, you can pay your insurance premiums from the refund using the monthly replacement function. Insurance companies design various products by combining these universal functions such as life insurance, annuity insurance, and variable insurance. These include universal life insurance, universal annuity insurance, and variable universal insurance.
(4) Personal pension insurance (pension savings insurance/pension insurance)
A pension to prepare for an individual's old-age life. First, a public pension guaranteed by the government, second, a retirement pension guaranteed by a company, and thirdly, a personal pension tax There are branches.
This is called the three-tier structure of the annuity. Personal pensions can be divided into qualifying pension savings that are tax-deductible and non-qualifying pension savings that are not.
There are currently three types of eligible pension savings on sale: pension savings trust, pension savings fund, and pension savings insurance.
Personal pension insurance is insurance for individuals to prepare for old age. It is divided into pension savings insurance with tax credit benefits and pension insurance with no tax benefits if certain conditions are met.
Pension savings insurance is 13.2% of the premium paid within the annual limit of 4 million won (for those with a total salary of 120 million won or global income exceeding 100 million won) 16.5%) of a tax credit.
On the other hand, in the case of annuity insurance, which is a non-tax-eligible annuity without tax deduction benefits, savings-type insurance with a contract period of 10 years or more and a lump-sum insurance premium of 100 million won or less, and a 10 year contract period of 5 years or more, equal to or less than 1.5 million won per month Monthly deposit-type annuity savings for paying premiums and life-type annuity insurance that pays annuity until death after the age of 55, in which the insurance contract and pension resources are extinguished upon death, are exempt from taxation.
Therefore, most annuity insurance is sold with these tax-free requirements.
(5) Actual Indemnity Insurance
Actual loss insurance is insurance that pays compensation for the amount of damage suffered due to an accident specified in the policy, unlike fixed-rate insurance, which pays only the amount of insurance money set in advance.
There are medical insurance that covers hospitalization and treatment costs, and fire insurance that compensates for losses caused by fire. In the case of actual loss insurance, since the amount of compensation paid for the same accident is determined as the amount of damage caused by the accident, if you subscribe to the insurance twice, the total amount of compensation you receive will be the same even if you have different insurance companies. have.
Indemnity medical insurance is insurance that covers medical expenses incurred by the insured due to illness or injury. This is a renewal type of insurance, and the premium changes at regular intervals (1 year, 3 years, 5 years, etc.) by reflecting the risk fee, and it is determined by the age of the insured or compensation experience under the previous contract.
Recently, under the name of old age indemnity medical expense insurance, a product that guarantees 80% of medical or hospital expenses (up to 100 million won) at an amount of less than 50,000 won per month, which is lower than the premium of existing indemnity insurance, has been launched.
Old-age loss medical expenses insurance can be purchased by people aged 80 years, and there are products that provide long-term coverage (up to 100 years of age, etc.).