Expanding Sales Emphasizing "High Refund Rates" and "Tax Savings"
Cases of Agents Promising Large Cash Payments to Encourage Insurance Enrollment
# Mr. A joined a key person term insurance policy with a monthly premium of 640,000 KRW after seeing in the guidance materials provided by the insurance planner that "the rate of return reaches 125% after 5 years of contract." Later, while reviewing the product brochure for use in financial statements, he found that even after 15 years, the surrender value was only 101%, and that the guidance materials at the time of subscription were illegally created and unapproved materials made arbitrarily by the planner.
The Financial Supervisory Service (FSS) has issued a consumer caution alert, expressing growing concerns about incomplete sales related to key person term insurance policies designed to prepare for the unexpected absence of small and medium-sized enterprise executives.
On the 17th, the FSS stated that recently, the insurance industry has been expanding sales by emphasizing "high refund rates" and "tax-saving effects," raising concerns about incomplete sales. Key person term insurance is not a savings product like bank deposits or time deposits but a protection-type insurance product that guarantees the death of a corporation’s chief executive officer (CEO).
The FSS explained, "Key person term insurance is a protection insurance that insures the death of a corporate CEO or similar insured person and is not suitable for savings purposes," adding, "It takes more than 10 years to reach a surrender value of 100%, and after a certain point, the surrender value decreases, so losses may occur depending on the timing of cancellation." In particular, it added, "Some planners exaggerate the rate of return by using unapproved guidance materials or include corporate tax deductions in the income amount."
It also emphasized that subscribing to key person term insurance solely for tax-saving purposes such as corporate tax reduction is inappropriate. Insurance premiums paid by the corporation can only be recognized as expenses under tax law if certain conditions are met, and even if expenses are recognized, corporate tax and other taxes will be imposed when surrender values are received in the future, making it unsuitable as a tax-saving product.
The FSS explained, "Recently, key person term insurance is being sold as a tax-saving insurance product by emphasizing corporate tax reduction and tax-saving strategies," adding, "Unexpected tax burdens may arise, such as taxes being imposed again when surrender values are received."
The FSS also urged caution when insurance planners promise large sums of money to encourage insurance subscription. According to FSS inspections, many cases have been found where large sums of money were promised to corporate CEOs and others to induce subscription to key person term insurance.
The FSS stated, "The Insurance Business Act prohibits the provision of special benefits, and insured persons who request and receive such benefits may also be punished," urging, "Please be careful as subscribing to insurance for the purpose of receiving commissions, contrary to the purpose of insurance, may involve illegal activities."
Furthermore, the FSS warned to be especially cautious when key person term insurance is recommended as a fee for corporate consulting. There is an increasing number of cases where some insurance agencies demand high-value key person term insurance subscriptions by offering free corporate consulting.
The FSS explained, "Many cases occur where promised consulting is not properly conducted after insurance subscription," adding, "When canceling insurance contracts, large consulting fees are charged to the contract holders, causing damage."
Meanwhile, the FSS plans to devise measures to prevent violations of recruitment order and incomplete sales during the recruitment process of key person term insurance and will immediately demand corrections for various consumer damage concerns found during the process.
The FSS stated, "We plan to actively respond through on-site inspections of insurance companies and general agencies (GA) with a high possibility of recruitment order violations," adding, "Strict sanctions will be imposed on insurance companies and GAs found to have committed illegal acts depending on the severity of the case."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
