Financial Gerontology and the Potential of Insurance

September 17, 2024
by Noriyuki Morimoto

In a hyper-aged society like Japan, increased longevity must be the cornerstone of growth strategy, even if this sounds paradoxical. In finance, the examination of new possibilities created by longevity is called financial gerontology.

Needless to say, the biggest goal of financial gerontology is to ensure an environment in which people can accumulate resources in their working years for a prosperous retirement. At the same time, the challenge for retired people is how to utilize assets efficiently and withdraw funds in a planned manner.

Of critical importance in the withdrawal of funds is the risk of life expectancy. No one knows how long they will live. Because we do not know, the reality is that we become unable to withdraw our funds to prepare for a long life and to spend for a prosperous retirement.

This is not simply a matter of individual happiness, but an essential aspect of economic policy, since in a super-aging society, consumption by the elderly has a huge impact on the economy. Since the Financial Services Agency has declared that the main objectives of financial administration are to sustain economic growth and enhance the welfare of people, creating a society where the elderly can consume with peace of mind should be a top-priority policy issue.

This is where the social need for insurance arises as the bedrock of minimum security. Insuring against the risk of life expectancy boils down to adding insurance that covers certain medical expenses onto a minimum life annuity insurance as a supplement to the public pension. If these insurance policies are purchased with a lump-sum premium payment, the remaining savings can be invested stably on the one hand while being systematically withdrawn and used for consumption on the other, based on one’s own judgement of life expectancy.

Such a functionality could be incorporated into a single insurance product, for example, as a single-payment life annuity insurance with an added element of diminishing annuity value and a special clause for medical care coverage. In this case, it goes without saying that from the perspective of the customer’s benefit, the cost of each insurance element must be disclosed in an appropriate manner and sold under an appropriate commission.

 

[Category /Insurance]