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The salesman repeatedly visits for recommendation, but are insurances really suitable for financial planning?

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Insurance expert Insurance plan The salesman repeatedly visits for recommendation, but are insurances really suitable for financial planning?

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2021.11.08

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The salesman repeatedly visits for recommendation, but are insurances really suitable for financial planning?

In the past, the Ministry of Finance has listed eight relevant circumstances:

Some people may think that they will be safe as long as they avoid these eight circumstances, but with the increase of taxes on tax collection, there have been fare more than these circumstances. Therefore, how to realize the purpose of financial planning through insurances and regulations while avoiding being visited by a tax authority with a reason in the future, the original “planning intention” will be a major focus. By the way, if you have held many policies for financing planning through tax mitigation, you’d better find a professional consultant to settle the matter together with you, and review the policies again to confirm if the policy holder or beneficiary thereunder has to be adjusted. You shall pay attention to the gift issues in the change process and comply with today’s regulations, to minimize errors as soon as possible.
Finally, let’s get back to the topic of this article. Are policies suitable for financial planning? First, confirm what kind of money that you want to plan. Most people may only think that it is just a plan that can achieve higher interest rate than the banks, but in terms of inheritance under the civil law, very few people know that specific shares are particularly opposed under the policies. Therefore, insurances are extremely important for a family’s legacy planning/ It is inadvisable to simply say that insurances are favourable or unfavourable. In the field of financial planning, insurances are absolutely necessary, but do you need to perform financial planning through insurances? Only if you make appropriate decisions at the beginning after a comprehensive evaluation, and conduct regular annual examinations will you be relieved from subsequent worries.

The proceeds from life insurance upon death and specified annuity under the annuity insurances are paid to the designated beneficiary after the death of the insured. In accordance with Article 12 of the insurance laws, they shall not be reckoned as the estate of the insured, but in case of any act of evading estate taxes, the tax authority will take actions according to the principle of substantive taxation according to related tax laws or Article 12 of the Tax Collection Act. (J.G.B.S.Zi. No. 10202545341)

Know about laws and regulations

Now, let’s talk about the “advanced version” for insurance planning - risk transfer / taxation planning.

Many people may earn a lot in their own businesses and investments. For them, the main function of insurance and insurance planning is no longer saving money, but matters about asset inheritance. High leverage is one of the striking advantages of insurances. When the appropriate age and health conditions are satisfied, the coverage will be as high as NT$ 20 million in the first year for the whole life insurance premium of $NT 500,000. Saving a dollar is equivalent to making a dollar. If you can make good use of the tax-free amount of NT$ 33.3 million under the basic tax regulations, and the tax-free amount of NT$ 2.2 million granted per year, combined with the high leverage of insurances, it is equivalent to retaining enormous wealth for your family. Before implementation of the minimum tax system, insurance payments were indeed exempt from tax, although more tax regulations were issued from then on. However, because there were corresponding laws and regulations to follow, many people were still eager to plan. In view of this, the Financial Supervisory Commission R.O.C. (Taiwan) issued an order on the substantive tax principle in 2013, so as to prevent people from avoiding estate or related taxes intentionally by insurance planning. The substantial tax principle refers to Article 12 of the Tax Collection Act, where it is generally stipulated that despite of pertinent regulations on taxes, dependent upon the case, the legislative purpose, economic significance, and the principle of fairness must be considered in interpretation. It is inadvisable for the insured to simply abuse the laws and evade taxes merely for tax benefits. Otherwise, they would probably be required to additional pay the taxes and even be fined.

The interest rate of common savings insurances is declared to be 3.XX%, which seems to be much higher than the banks’ interest rate, but you must know a few points:

The assumed interest rate and the declared interest rate shall not be compared with the banks’ interest rate because their calculation basis is different.
The declared interest rate fluctuates every month. It even necessarily changes with the local bank interest rate, and its amplitude is basically determined by the insurance companies.
Under normal circumstances, one will suffer losses if terminating the policy before its expiry, so these insurances are not as flexible as bank accounts.
No matter for a policy subject to variable interest rate or a participating policy, usually at the earliest when the payment term expires will the cash value be ready to be demonstrated prominently.

From the above three points, it is known that the “interest rate” that most people expect is actually not reflected from the cash value until several years later. Take the commonly known “six-year savings insurance” for example. If you expect considerable cash value from the insurance in the seventh year of your purchase, it is better to try to calculate before buying the insurance. Then, you will find that you would rather the cash value of annual time deposit in banks is even higher than the so-called six-year savings insurance (you are suggested to calculate with the internal IRR formula). However, if you maintain this insurance permanently without cancellation, its cash value might be higher than that of the bank deposit. However, a policy is more binding than the bank deposit, because it is difficult to withdraw the money under the policy. Then, you might think, will the money not be used at all in the next few years? Can you pay the premium every year without affecting your quality of life? Will this amount of money be connected with your life plan for a certain year in the future? Therefore, bank savings or savings insurances demonstrate their respective advantages, which depend upon how the insured choose.

“Elementary version” for insurance planning - savings insurance.

In fact, no insurance is called savings insurance. People refer to an insurance as savings insurance, just because cost of the life insurance is low, the insurance focuses on the future cash value, and buying this insurance is like saving money. Comparatively, if the coverage of this life insurance is high , its cash value will not be displayed as expected.

00 insurance salesperson says so

Do the insurance salespersons say the same as follows?

“The interest rate of this policy is 3.2%, but the interest rate of bank savings is only 0.8%. Our interest rate is four folds that of the banks! Trust me, six years are short. It is very quick to save a certain amount of money!” No matter you are petty bourgeoisies who have just stepped into the society or the Taiwanese businessmen who have just transferred your overseas funds back to Taiwan by special methods in this August, can all of you hear the same words from the insurance salespersons?
We believe that many people will sign the policy after hearing the foregoing words, but most people have no idea what went wrong with these words. When any disputes arise under the policies one day, the clients will angrily argue, the salespersons will have no idea about where they do wrong, and the insurance companies feel so difficult to decide whether to stand by the clients’ side or by their own side. These cases are truly common. If you happen to be thinking about whether to perform financial planning by a policy, the following article will help you make the right decision.

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