Are rich households investing in life insurance?

The 10-year Vision of the Insurance Sector at 7 Points was published, in which we can find a lot of interesting things. Basic human nature is that you always want to be the best.

This is no different in financial affairs, so it can be very interesting to see where the Hungarian population is in this international comparison? Find out what the wealthiest households invest in their money and why they invest in life insurance

In financially advanced households

cash

The hit invests in life insurance and pension fund life insurance

Within the European Union, the share of households’ financial assets accumulated by 2015 in relation to GDP (Chart 2) shows a significant dispersion between countries (Romania 49.9%; Netherlands 317.2%). In Hungary, this ratio was 105 per cent, ie the savings made by households in 2015 already exceeded the GDP level (33.7 thousand billion forints). – the publication says.

It is of particular interest to test me the chart. It is evident that the portfolio of households in Hungary contains a similar proportion of equity and investment funds than in the most developed regions. This means that, despite this, we are not lagging behind in this indicator to the fundamental problems of domestic financial culture.

However, the poorer regions are lagging behind

However, the poorer regions are lagging behind

it can be traced back to financial culture, its shortcomings. It is clear from the table that life insurance is not very rewarding. The presence of life insurance in the “richer” lines is significant, while poorer people explicitly reject this form of savings.

Life insurance is the result of a poorly used financial structure. In countries with a less developed financial culture, people are using poorly life insurance policies, which can fundamentally provide a solution for 15-20 years. In Hungary, it has been known for years that the population wanted to achieve its short and medium term goals with life insurance. For this reason, they were disappointed and lost their confidence.

Cash is extremely high

Cash is extremely high

At first glance, it may not seem to be the case, but in Hungary (as well), households are disproportionately “cashed in”. The reason for this is probably the mistrust of the financial sector and the unfavorable conditions of the transaction. This is shown by the fact that Danish households with nearly 3x wealth have the same amount of cash as Hungarian households.

The existence of life insurance is too low

The existence of life insurance is too low

The question may arise, what’s the problem? Market experience has shown that in recent years the level of average premiums paid for life insurance has risen significantly lower than that of the population. And this can be very dangerous with a close to zero percent inflation rate, as it may put us in a comfortable misconception that the present value of our payments will be redeemable at 1: 1.

When inflation begins in Hungary, it is easy to imagine that the population will not be able to raise the proportion of life insurance premiums. In order to avoid this effect, it would be important to make a higher contract amount with rising incomes near 0% inflation. Because it is not feasible that by 2010 the average customer wanted to set aside $ 20,000 a month, in 2018 the same number (close to doubled average income) could be 22-23,000 forints.

The pension fund and life insurance are blending together

The pension fund and life insurance are blending together

Domestic households are increasingly identifying pension savings with pension insurance, since among other things, the statutory expiry date of the law is more favorable (the retirement age at the time of the contract is the date of payment, while the old age retirement age.

Since the rate of tax credit (20%) is the same for three different types of pension savings, clients will decide on different criteria. Many people are afraid of shrinking the pension fund system due to the “retirement” of the private pension fund system. The development of the remaining voluntary pension fund system is not helped by the fact that this option has been chosen among the elements of Cafeteria in the last few years under the unfavorable tax conditions.

Leave a Reply

Your email address will not be published. Required fields are marked *