[Becoming an Insurance Insider] Do Insurance Companies Lose Money When Life Expectancy Increases?

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[Asia Economy Reporter Oh Hyung-gil] As life expectancy increases, the most commonly purchased product for retirement preparation is pension insurance. When preparing for pension insurance, the most frequently asked question is how much one can receive after subscribing. However, just as important as the pension amount is the method of receiving the pension.

Since life expectancy in Korea is steadily increasing, the pension amount can vary depending on how the pension is received.

The pension receiving method can be selected and changed anytime from the time of insurance subscription until before the pension starts, but once pension payments begin, it cannot be changed. Therefore, it is necessary to check the pension receiving method in advance and carefully consider one's situation and retirement plan before choosing.

According to the insurance industry on the 15th, there are three main ways to receive pensions: lifetime pension type, fixed-term pension type, and inheritance pension type.

The lifetime pension type, as the name suggests, allows receiving pension payments for life until death. It is only available through life insurance companies and cannot be selected from non-life insurance companies.

Although early death may result in a shorter pension receiving period, which might seem disadvantageous, a guaranteed period of 10 or 20 years is set so that the pension does not stop and the remaining family members can continue to receive the pension during the agreed period.

The fixed-term pension type is a form of receiving the accumulated funds over a certain period.

Periods such as 10, 15, or 20 years can be selected, and the shorter the period, the larger the annual amount received. However, once the period ends, no more pension payments are made, which can be problematic if one lives longer than expected.

The inheritance pension type allows the accumulated funds to be passed on to children if the insured dies while receiving the pension during their lifetime.

It involves setting an inheritance fund (reserve fund) and receiving interest on it for a fixed period or during the lifetime, with the principal being inherited upon death and used as the inheritance fund. The inheritance pension type is also only available through life insurance companies.

Recently, as life expectancy in Korea has increased, insurance companies are concerned about greater losses. This is because if lifetime pension subscribers live longer than the insurer's expectations, the pension payments exceed the expected amount.

According to the report "Slowing Increase in Life Expectancy and Its Implications" released by the Korea Insurance Research Institute, life expectancy in Korea is steadily increasing.

The World Health Organization (WHO) projected that considering Korea's sharp increase in life expectancy, it will become the longest-lived country by 2030.

As of 2017, among OECD countries, those with the highest life expectancy are Japan, Switzerland, Spain, Italy, and Korea, in that order, and Korea's life expectancy shows a rapid increase trend unlike other long-lived countries.

In particular, according to the life table recently announced by Statistics Korea, the life expectancy of Korean men and women in 2018 was 79.7 years and 85.7 years respectively, the same as in 2017. This is the first time since 1970 that life expectancy has plateaued after continuous increase.

The report pointed out that Korea's life expectancy is expected to follow a trend similar to major long-lived countries rather than continuing to increase rapidly.

The report suggested that the slowing increase in life expectancy alleviates such concerns and that insurance companies need to pay attention to this slowing trend in life expectancy.