The Long-Term Nature and Savings Function of Life Insurance: An Analysis from the Level Premium Mechanism to Personal Financial Investment Attributes

(II) Unlike accident insurance, which is mainly long-term business, life insurance generally has a longer insurance period. From the perspective of the international life insurance industry, there are few life insurance products with an insurance period of less than 5 years. Most insurance products have an insurance period of more than ten years or even several decades. The reasons for the longer insurance period are: (1) The adoption of the "level premium" method. In order to avoid adverse selection, the insurance premium is calculated based on the mortality probability in the life table. As the insured's age increases, the insurance premium payable gradually increases. In order to avoid the elderly insured being forced to withdraw from life insurance due to the inability to afford the increasing insurance premiums caused by the decline in labor capacity and labor income, the "level premium" method was introduced. As a result, many 1-year and 2-year life insurance policies naturally become 5-year, 10-year, or even longer terms. (2) Most survival insurance is for the insured to use for old age, so many are annuity insurance. Of course, it is also feasible for the policyholder to insist on purchasing 1-year survival insurance. As long as it can be renewed every year, it seems that "short-term insurance can be extended to long-term insurance" to achieve the same protection purpose. However, insurance is a commercial transaction with equal rights and obligations. If the insured is in good health and financial condition, the insurer will have no problem underwriting. But if the insured's health deteriorates or their financial situation worsens when they renew the policy, the insurer, for business reasons, may refuse to renew or raise the premium, making it unaffordable for the policyholder and resulting in renewal failure. Therefore, when the insured is in good health and meets the underwriting requirements, purchasing a longer-term life insurance policy can provide more stable life insurance protection. Because life insurance policies are mostly long-term contracts, the impact of economic factors such as interest rates and inflation rates is significant for both the insured and the insurer. Therefore, a country's macroeconomic situation is crucial for the life insurance industry.

(III) Possessing the nature of savings and increasingly becoming an investment tool, savings offer returns and benefits. This means that after a period of time, depositors can recover their principal and receive interest income as compensation for forgoing the right to use the funds during that period. Life insurance systems also offer similar interest returns. Life insurance policies mostly use the "level premium" method to collect premiums based on actual needs. In the initial stages of the policy, the actual premium paid will inevitably be higher than the risk premium calculated based on life tables, etc. This excess portion is held by the insurer and invested in the insurance fund to generate interest and appreciation, used for insurance payouts in the event of future risks or to directly compensate for the shortfall in the level premium in the later stages of the policy. This portion of the premium is called the savings premium. The savings premium is a portion of funds that the policyholder deposits with the insurer, generally for a relatively long period, during which the insurer manages and uses it. Insurers generally deposit the savings premium, interest, and dividends to form a liability reserve. If the policyholder applies for surrender before maturity, the surrender value is often lower than the total premiums paid over the years. Furthermore, in life insurance, the insurer pays out the insurance benefit regardless of whether the insured survives to the end of the policy term or dies during the policy term. For endowment insurance, the accident is predetermined, and therefore, the return of funds to the policyholder is also predetermined. Because life insurance features both return of funds and returns, a life insurance policy has cash value upon surrender after a certain period. Moreover, with the development of the insurance industry and innovation in the financial sector, most life insurance policies can be used as collateral for loans, similar to stocks and other securities. Therefore, life insurance is increasingly becoming a personal investment tool.

(IV) Methods of Determining Premiums Due to the unique nature of the risks insured, life insurance has developed a complete and scientific system for calculating premiums and determining liability reserves. Life insurance determines premiums and liability reserves based on the insured's probability of survival and death during the insurance period, combined with basic factors such as age, economic status, and health at the time of contract signing, as well as various factors such as the insurance period and guaranteed interest rate. This is achieved through empirical calculations and the application of mathematical and statistical methods. This method has a relatively scientific calculation process and reliable statistical data, resulting in relatively high predictive accuracy; however, the calculation system is complex and requires a high level of actuarial expertise. Developing scientific and reasonable premium standards, coupled with capable and efficient life insurance sales personnel who can provide comprehensive explanations to users regarding premium payments and benefit payments, is one of the key principles of life insurance business management.