Evolution of Life Insurance Product Innovation: From Participating, Universal Life, to Investment-Linked Insurance – Flexibility and Risk Management Mechanisms

3. General payment clauses, such as the incontestability clause, are common in group life insurance policies. Two years after the policy's effective date, it is considered an incontestable insurance contract, except in cases where the policyholder has outstanding premiums. Similarly, the insured employee's life insurance is also considered incontestable two years after the policy's effective date. This creates two contestable periods: the contestable period for the main policy and the contestable period for the individual insured employee. According to this clause, the insurance company will only dispute the policy if misrepresentation affects its underwriting decision. These are the key clauses of group life insurance. However, in practice, group policies are usually a hybrid policy with group life insurance as the main component and supplementary group health insurance or group accident insurance, etc. Therefore, it is not unusual for a group policy to contain other health-related clauses, unlike the clear distinctions in theory.

Section Four: New Types of Life Insurance Launched in my country. New types of life insurance, also known as non-traditional life insurance, investment-linked insurance, or investment-linked insurance, are a series of novel insurance products developed by insurers to adapt to new insurance demands and increase product competitiveness. The difference between new and traditional life insurance products lies in the fact that new life insurance products typically have investment functions, or variable premiums and sum assured. Examples include "Ping An Century Wealth Management Investment-Linked Insurance" and "Taiping Shengji Changfa Whole Life Insurance," both of which are new types of insurance products. New life insurance products mainly include variable life insurance, universal life insurance, and variable universal life insurance.

I. Overview of New Types of Life Insurance New types of life insurance refer to a type of personal insurance that includes insurance protection functions and holds a certain asset value in at least one investment account. In addition to providing the same protection services as traditional life insurance, new types of life insurance allow customers to directly participate in investment activities managed by the insurance company. Most of the customer's premiums are credited to an investment account specially established by the insurance company, where investment experts are responsible for the use of funds. The asset value in the investment account will fluctuate depending on the actual returns of the insurance company, so while customers enjoy expert financial management, they also face certain investment risks. New types of life insurance have dual functions of insurance and investment, and are characterized by independent accounts, transparent operation, uncertain protection levels, and the coexistence of returns and risks. Life insurance is a long-term insurance contract, often with a term of ten or even several decades. Over such a long period, the insured's insurance needs will change with age, family structure, economic situation, and other factors. This necessitates that the insurance plan be sufficiently flexible, allowing for adjustments at any time to adapt to the insured's ever-changing insurance needs. However, traditional life insurance products, due to structural limitations, struggle to adapt to changing customer needs, often resulting in a disconnect between the insurance plan and the customer's actual requirements. This typically manifests as either excessive coverage, leading to excessive premiums, or insufficient coverage, leaving customers without adequate protection. Simultaneously, market interest rates exhibit significant uncertainty over insurance policies spanning decades. When designing traditional life insurance policies, life insurance companies may find their products uncompetitive if the guaranteed interest rate is set too low, resulting in returns below market rates; conversely, setting it too high may lead to interest rate losses if actual investment returns fall short of the guaranteed rate. Therefore, insurance companies are generally cautious and choose conservative interest rates when setting the guaranteed interest rate, which is often lower than the market level. Especially with the continuous development and maturation of the capital market and the emergence of various new investment products offering higher returns, the low returns of life insurance products have significantly reduced the attractiveness of their savings function. This has led to the phenomenon of "buying term insurance and using the remaining premiums for investment," and many customers are requesting policy surrenders or policy loans to withdraw cash and divert it to other investments. This not only creates significant difficulties for insurance companies' business development but also puts enormous cash pressure on them due to surrenders and policy loans. Furthermore, since the policy cash value is predetermined based on the guaranteed interest rate, the actual value of the insurance money received by the customer, after adjusting for inflation, is often insufficient to meet the customer's financial goals set at the time of purchase. In addition, life insurance policies guarantee long-term policy cash value. To achieve asset-liability matching, insurance companies choose long-term investments, locking up a large amount of cash in relatively stable but low-return long-term investments. This severely restricts the investment flexibility of insurance funds, making it difficult to achieve ideal investment returns and contradicting the interests of both insurance companies and customers. Due to the aforementioned limitations of traditional life insurance products, insurance companies' market competitiveness and position have been challenged. To survive and thrive, insurance companies must adapt to the market environment and establish new competitive advantages by innovating their products and services to provide more competitive offerings that better meet customer needs. The introduction of new life insurance products has generated three major trends: increased consumer awareness, greater autonomy in investment choices, and operational innovation by insurance companies.

II. New Life Insurance Products Launched in my country in Recent Years 1. Participating Insurance While participating insurance adds a dividend function compared to traditional non-participating insurance, allowing policyholders to enjoy the insurer's investment returns and operating profits, the premium only provides protection services and is not divided into two parts. Therefore, in this sense, participating insurance still belongs to traditional life insurance. Participating insurance originated in England in 1776 and has a history of over 200 years abroad, but it has only recently appeared in China. Therefore, it is suitable for various types of life insurance and can be combined with term life insurance, whole life insurance, and endowment insurance to form various participating insurance products, thus occupying an important position in the international life insurance market. In the United States, approximately 80% of life insurance policies are participating; in Germany, participating insurance accounts for 85% of the country's life insurance market; and in Hong Kong, this figure is as high as 90%. The dividends of participating insurance mainly come from "three-way profit," namely mortality profit, interest profit, and expense profit. In addition, there may be surrender value and asset appreciation gains. Participating insurance policies distribute dividends based on the principle of fairness, according to the policy's contribution to the company's profits. Dividends are divided into cash dividends and growth dividends. Cash dividends can be disposed of in cash, deposited into the insurance company and accrue interest at a certain rate, or used to offset premiums; growth dividends are used to increase the sum insured. The advantage of participating insurance lies in forming a community of interests between the customer and the insurance company. Customers not only enjoy the fixed interest rate of participating insurance but also directly participate in the full distribution of operating profits. Furthermore, participating insurance has a simple structure that is easy for customers to understand. However, its disadvantages include limited flexibility. Participating insurance is similar in product design to traditional non-participating insurance, offering no choice in premium payment or sum insured selection; once the customer has made a decision, it cannot be changed. In addition, due to the fixed guaranteed interest rate, the use of funds in participating insurance is relatively conservative, thus limiting the potential for interest rate spreads. Since the introduction of the first participating insurance policy in my country's life insurance market in late March 2000, various life insurance companies have followed suit. Currently, participating insurance products on the market include whole life insurance, annuity insurance, and retirement insurance.

2. Universal Life Insurance: The biggest feature of universal life insurance is its flexibility, namely the selectivity of premium payments and the adjustability of the sum insured. Furthermore, the policy operation is transparent. Universal life insurance has an independent investment account, the value of which has a fixed guaranteed interest rate. When the actual return on investment in the individual account exceeds the guaranteed interest rate, the insurance company and the customer can share this profit.

3. Investment-Linked Insurance: Investment-linked insurance is a new type of financial product that combines insurance and investment, similar to variable life insurance or variable universal life insurance in the United States. Investment-linked insurance has attracted considerable attention in the Chinese life insurance market in recent years, with rapid sales growth. There are two types of investment-linked insurance in my country: one is variable life insurance with fixed premiums and fixed sum assured, such as "Ping An Century Wealth Management," where customers pay premiums regularly and in fixed amounts. After deducting various expenses (including sales expenses, insurance costs, maintenance costs, etc.) from each premium payment, the remainder goes into an investment account for investment. The policy lapses when premium payments cease. The other type is universal variable life insurance, such as "Xinhua Genesis Contract," where both premium payments and the sum assured can be adjusted. All premiums after deducting sales expenses go into the investment account, and insurance costs and maintenance costs are deducted by selling fund units in the investment account. The investment account in investment-linked insurance refers to a dedicated account established by the insurance company for the use of funds in accordance with national policies and relevant laws and regulations when operating investment-linked insurance products. Investment-linked insurance has at least one investment account, and may have more, generally divided into different investment accounts according to different risk categories. When Ping An Insurance's "Ping An Century Wealth Management" investment-linked insurance and New China Life's "Genesis Covenant" investment-linked insurance were first launched, both had only one investment account. The premiums paid by the policyholder were allocated to two accounts: an investment account and a protection account. However, the policyholder had no right to choose the investment portfolio; the funds in the investment account were managed by the insurance company, which decided on investment projects according to relevant national regulations. The insurance company only charged handling fees for investment transactions, and the insured bore all investment gains and losses. If the insured died during the insurance period, the insurance company would pay the death benefit based on the greater of the total value of the investment units under the contract or the sum insured. If the insured was still alive at the end of the insurance period, the beneficiary could apply for the maturity benefit, i.e., the total value of the investment units under the contract, at any time within 5 years after the maturity date. During the contract's validity period, the policyholder could also request a partial withdrawal of the cash value in the investment account, but the sum insured under the contract would be reduced proportionally according to the withdrawal amount. Furthermore, the annual insurance premiums payable thereafter will be reduced proportionally, but the reduced premiums shall not be lower than the minimum amount stipulated by the company.