The Japanese love their insurance. According to the weekly tabloid Shukan Post, the average household in Japan pays 454,300 yen (approx. US$5,393) a year in life insurance premiums in an effort to feel safe and protect loved ones. Comprising just 2% of the global population, Japan pays 18% of the world’s total insurance premiums, this which works out to average insurance spending of US$3,500 per capita, the highest level in the world.

The reason, said Toru Ushiroda, insurance consultant and author of Seimei Hoken Wana (Life Insurance trap) is “because insurance companies can easily coax (trusting Japanese) consumers into signing life insurance contracts.”

While bringing peace of mind to subscribers, insurance also serves as a “meal ticket” for the companies acting as issuers.

According to Ushiroda, “A surprisingly large number of subscribers don’t know the content of the agreements they have signed. People have told me they joined a particular scheme because they ‘often saw it advertised on television so thought it to be a popular and reasonable plan.’ They continue to pay premiums with a sense that there is no choice, like taxes which are automatically deducted from one’s pay. Even if the insurance terms appear favorable, they cannot be that good for the subscriber.”

Ushiroda continues, “Insurance is a mutual aid mechanism in which premiums paid by subscribers are pooled together as joint property and redistributed to individuals or families suffering misfortune. The problem is that pricing information is not disclosed. When money is redistributed, the insurance company takes about half of the amount for expenses; that can hardly be called mutually beneficial.”

Looking closely at the premium breakdown will tell you whether or not the insurance company is selling a product that is designed to be overly beneficial for the company.
premium breakdown

The total premium paid consists of two parts: the ‘net premium’ (shown in red), which goes directly into pooled funds shared by all subscribers, and the ‘additional premium’ (shown in blue) which goes to cover the insurance company’s expenses, including its profit. Thus, the larger the ratio of ‘net premium’ to ‘additional’ premium, the more beneficial the product is to the subscriber.

The various policies offered by insurance companies are first and foremost designed not to deliver losses to the issuing company by making sure enough of the premium is set aside to protect the company’s interests. Put another way, when looking at the balance between what subscribers pay in premiums and the amount of insurance money they are eligible to receive, the mechanism is such that when the total for all participants is considered, subscribers will always come out on the losing end.

Setting enough money aside for protection against unexpected events is only natural considering the bookmaking-like operations of insurance companies. However, if that amount is too large, there is no real benefit for the consumer in taking out a policy.