[Becoming an Insurance Insider] The End of No-Surrender and Low-Surrender Insurance Policies

Financial Services Commission Revises Insurance Supervision Regulations in October
Higher Refund Rates Than Standard Insurance Not Allowed
"Advantages of No- or Low-Surrender Value Insurance Disappear"

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[Asia Economy Reporter Oh Hyung-gil] 'Will no-surrender and low-surrender refund-type insurance, which offers little or no refund upon cancellation, face extinction?'

The refund rates of no-surrender and low-surrender refund insurance, which have been criticized for being disguised and sold as savings products due to their high refund rates, are scheduled to be adjusted starting this October. Since they will no longer be allowed to exceed the refund rates of standard insurance with the same coverage, the refund rates will be significantly lowered.

This measure is intended to prevent promotions claiming "you can get high interest rates," but concerns are emerging that it will deal a major blow to the sales of no-surrender and low-surrender insurance.

According to the insurance industry on the 1st, the Financial Services Commission plans to implement the Insurance Business Supervision Regulations, which include improvements to the product structure of no-surrender and low-surrender refund insurance, after review by the Ministry of Government Legislation and the Regulatory Reform Committee by the end of September, followed by approval by the Financial Services Commission, and will enforce it in October.

No-surrender and low-surrender refund insurance is characterized by offering the same coverage as standard insurance but with lower premiums in exchange for little or no refund upon early cancellation.

For example, for a 40-year-old male with a 20-year payment period and a coverage amount of 10 million KRW for whole life insurance, the premium for standard insurance is 23,300 KRW. After 20 years of payment, the refund amount is 5,438,900 KRW, resulting in a refund rate of 97.3%.

The no-surrender refund insurance premium is 16,900 KRW, and although there is no surrender refund during the payment period, after 20 years of payment, the refund amount is 5,438,900 KRW, with a refund rate approaching 134.1%. The refund rate after completing premium payments is structured to be higher than that of standard insurance.

However, going forward, the refund rate for no-surrender refund insurance after 20 years of payment will be limited to 97.3%, not 134%. The refund amount will significantly decrease from 5.43 million KRW to 3.38 million KRW. Refunds after 30 or 40 years of payment will also be lowered to match the refund rates of standard insurance.

The authorities expect that this will resolve the problem of no-surrender and low-surrender refund insurance being sold with an overemphasis on high refund rates, thereby preventing incomplete sales.

However, within the insurance industry, there are reactions that this measure effectively eliminates the advantages of no-surrender and low-surrender insurance. While it was possible to promote the advantage of providing the same coverage and refund amounts as standard products in exchange for not guaranteeing surrender refunds, complaints have arisen that even this will become difficult in the future.

An insurance industry official said, "This is a measure that dilutes the advantage of lower premiums compared to the standard type but the same refund after premium payments," adding, "Consumers who expected high refund rates with low premiums will have fewer options."