Many families take out education insurance when their child is born and continue to pay the monthly premiums. However, lately, when looking at household financial consultations and money advice forums, I repeatedly see inquiries like, “When I canceled my education insurance early, the amount I got back was less than what I had paid in.”
As I compared several financial articles, I noticed a common pattern in these inquiries. It is rarely the fault of the individual; in most cases, it is a structural issue that is difficult to notice at the time of enrollment. In this article, I will organize these patterns into “three miscalculations.”
Cases of principal loss due to early cancellation of education insurance are endless
Education insurance is a type of insurance designed to accumulate a fixed amount monthly and receive a lump sum of congratulatory money or a maturity benefit when the child reaches the stage of advancing to higher education. Perhaps because the word “savings” carries such a strong image, many people enroll with the feeling that it is an extension of a bank deposit.
However, education insurance is an insurance product, and the insurance company’s operating costs and the costs for the protection portion (such as the mechanism where subsequent premiums are waived if something happens to the policyholder) are deducted from the accumulation portion. Therefore, even for products designed with a “return rate of over 100%” that exceeds the total premiums paid if kept until maturity, the situation changes if you cancel midway.
Especially with early cancellation within a few years of the contract, there are cases where the surrender value is set to be very small or almost non-existent. Decisions like “I canceled because I suddenly needed money” or “I canceled to switch to a product with better terms” often lead to receiving an amount significantly lower than the total paid, a scenario frequently mentioned in household financial consultations and money advice forums.
In this article, I will use information from public institutions to organize why these “miscalculations” occur and provide a decision-making framework that can be used by both those planning to enroll and those already enrolled.
Organizing based on information from the Life Insurance Culture Center
While there is a lot of information about education insurance online, content from insurance companies and comparison sites tends to be based on their own products or the products of their referral partners. Therefore, this article focuses on the explanations published by the Japan Institute of Life Insurance, a public interest incorporated foundation. The center is a neutral organization that does not belong to any specific insurance company and provides basic knowledge about life insurance; it also has a page explaining the structure of contracts for child insurance (education insurance).
It states that the total amount of congratulatory money or maturity benefits received from education insurance may be less than the total premiums paid. It is necessary to first understand as a premise that “principal loss is not a special accident, but something that can normally happen depending on the contract details.”
In the paid section of this article, starting from this premise, I will explain the “three miscalculations” that many people overlook, along with the specific mechanisms involved. Regarding numbers and percentages, I will limit them to the expressions found in the original text of the Life Insurance Culture Center, and for figures that can only be confirmed in your specific contract, such as the return rate of individual products, I will guide you to “check your design document or contract guide.”
What you will learn by reading this article
When people who are considering canceling their education insurance or those considering enrolling in the future finish reading this article, they will be able to possess the following three decision-making axes.
The first is an understanding of the relationship between the return rate and inflation, specifically “why the amount received might look like it has increased compared to the total paid, but in reality, it has decreased in value.” The second is an understanding of the mechanism of the surrender value itself, specifically “why principal loss occurs with early cancellation.” The third is a comparison axis with other accumulation methods, such as the new NISA, specifically “whether you have considered it compared to options other than education insurance.”
If you enroll or continue without knowing these three things, thinking “it’s education insurance, so it’s safe,” you may end up panicking when you receive less money than expected at the time of your child’s advancement to higher education. Conversely, if you grasp these three points, you will be able to judge for yourself whether you should continue or review your education insurance.
