Japanese People Are Over-Insured - Examining Overlap with Public Benefits
According to a survey by the Life Insurance Culture Center, the average annual insurance premium per household in Japan is approximately 370,000 yen (about 3,700 USD), which translates to about 30,000 yen per month. However, much of this premium goes toward "excess coverage" that overlaps with public benefits. For example, even if you have generous hospitalization coverage through medical insurance, Japan's public health insurance system includes the Kogaku Ryoyohi Seido (High-Cost Medical Expense Benefit System), which caps monthly out-of-pocket expenses at approximately 80,000 to 250,000 yen depending on income.
In other words, even if medical expenses reach several million yen, actual out-of-pocket costs are limited. Additionally, company employees have access to generous public benefits such as Shobyou Teatekin (Injury and Sickness Allowance, paying approximately two-thirds of salary for up to 18 months) and Izoku Nenkin (Survivors' Pension, combining basic and employees' pension). The rational approach to coverage design is to accurately understand these public benefits and supplement only the shortfall with private insurance.
Review Points by Insurance Type - Start with the Highest Savings Impact
It is most efficient to review insurance starting with the items that offer the greatest savings. The biggest impact comes from life insurance (death coverage). Many households maintain high death coverage even after children have become independent, and simply reducing coverage to the minimum necessary can save 5,000 to 10,000 yen per month. Next is medical insurance. Considering the High-Cost Medical Expense Benefit System mentioned above, the need for medical insurance is low for households with savings of 2 million yen (about 20,000 USD) or more, and canceling or switching to a minimal plan saves 3,000 to 5,000 yen per month.
For auto insurance, switching from an agency type to a direct (online) type can reduce premiums by 30% to 50%. Raising the deductible on vehicle insurance and removing unnecessary riders are also effective. By reviewing just these three types of insurance, a reduction of 8,000 to 15,000 yen per month, or 100,000 to 180,000 yen annually, is realistically achievable.Books on insurance review and comparison provide step-by-step review procedures for each insurance type.
Redirecting Saved Premiums to Investments - The Optimal Balance Between Coverage and Wealth Building
If you save 8,000 yen per month (approximately 100,000 yen annually) by reviewing insurance and invest the entire amount, what happens? Contributing 8,000 yen monthly at 5% annual interest for 20 years grows to approximately 3.29 million yen (about 32,900 USD), and over 30 years to approximately 6.65 million yen (about 66,500 USD). This represents a shift in thinking from "preparing with insurance" to "preparing with investments." With sufficient financial assets, the need for insurance coverage itself diminishes.
For example, the decision to cancel medical insurance once financial assets exceed 10 million yen (about 100,000 USD) and redirect those premiums to investments is rational. However, insurance that protects against risks that could devastate your life - such as group credit life insurance for mortgages and liability insurance for automobiles - should be maintained. Insurance is for preparing against "low-probability, high-damage" risks, while "high-probability, low-damage" risks should be handled through savings and investments.Books on balancing insurance and investments are also helpful references for rational coverage design.
Next Actions to Start Reviewing Insurance
Start by gathering the policy documents for all your current insurance and listing the coverage details and monthly premiums. Next, check the out-of-pocket limit of the High-Cost Medical Expense Benefit System for your income bracket and compare it with your medical insurance coverage. If you find overlap, that is the first candidate for reduction. For life insurance, calculate the "required coverage = family living expenses - survivors' pension - savings" and verify whether your current coverage is excessive.
The optimal balance between insurance and investments changes with life stages. Use a compound interest calculator to estimate the asset trajectory of "investing the savings from premium reduction" and see how much reviewing your coverage contributes to future wealth building.