[Insurance Tip ⑤] How Much Insurance Premium Is Appropriate for My Income?

"Proportion of Guaranteed Insurance Premiums Should Not Exceed 10% of Income"
'Domestic Households Generally Tend to Overspend on Insurance Premiums' Claim Also Exists

[Asia Economy Reporter Changhwan Lee] Kim Jang-mi, a late 20s office worker, pays about 300,000 KRW monthly for protection-type insurance premiums. Her insurance consists of whole life insurance, actual expense medical insurance, and driver insurance, which she subscribed to through an insurance planner who is an acquaintance of her mother. Kim receives a net monthly income in the mid-2 million KRW range but worries whether her insurance premiums are excessively high compared to her earnings.

As insurance has become an essential financial product in our lives, many policyholders contemplate whether the premiums they pay are at an appropriate level. If the monthly insurance premiums are too high relative to income, it can disrupt daily life; conversely, if too low, there may be concerns about adequately preparing for future risks.

Experts generally suggest that household spending on protection-type insurance premiums should be around 5% to 10% of income. They particularly advise against spending too large a portion of income on insurance premiums.

Woori Bank advises that when selecting insurance, premiums should be set within 7% to 10% of household income. This range includes various protection-type insurances as well as automobile insurance premiums.

According to Woori Bank’s insurance guide, pure protection-type insurance is better when the coverage period is longer, and for savings-type insurance, the payment period should be based on the earning period of the household’s main income earner.

They also added advice to carefully select riders for protection-type insurance. Unlike the main contract, riders allow policyholders to add necessary coverage and adjust their plans. Proper selection of riders can provide more benefits with the same product and premium.

Jung Byung-chul, author of the Insurance Knowledge Dictionary, states that subscribing to protection-type insurance within 6% to 10% of monthly income is appropriate. Generally, if premiums are less than 6% of monthly income, it is difficult to receive adequate coverage. Jung explains, "When married and raising children, insurance premiums should be about 8% to 10% of monthly income to subscribe to appropriately sufficient insurance products."

He also mentioned that men should subscribe to insurance earlier than women. Statistically, men die about seven years earlier on average than women, which causes insurance premiums to increase more rapidly.

In South Korea, there are claims that insurance premium spending is excessive relative to household income, and that premiums need to be trimmed. According to a 2017 survey by the Financial Consumers Federation of over 1,000 households, Korean households paid 18% of their income monthly on insurance premiums.

The survey showed that Korean households owned an average of 11.8 insurance products and spent 1,034,000 KRW monthly on premiums. The Federation pointed out that the proportion of pension and savings-type insurance subscriptions is too high and needs to be reduced.

In the survey, 40.7% of respondents answered that an appropriate monthly insurance premium level is about 5% to 10% of monthly household income. The Federation emphasized that domestic household insurance premium spending is excessive relative to income and that there is a high risk of financial loss due to mid-term cancellations, urging consideration of appropriate insurance premiums according to household income.