Attention on 'Credit Life Insurance' to Prevent Debt Inheritance Due to Household Debt Increase

As household debt increases, credit life insurance is gaining attention as a financial safety net.

Credit life insurance is a policy that guarantees the outstanding loan amount when a borrower faces difficulties in repaying the loan due to unexpected accidents. It serves as a social safety net to prevent the vicious cycle of debt inheritance.

KB Life Insurance Headquarters Building Exterior.

Although credit life insurance was introduced in Korea over 20 years ago, many people are still unaware of its existence due to low recognition. According to a survey conducted by KB Life Insurance in 2021 targeting 600 men and women aged 25 to 52 nationwide, 77.5% of respondents answered that they did not know about credit life insurance.

Institutional restrictions also hinder the activation of credit life insurance. When signing up for loan products at banks, providing guidance on credit life insurance may be interpreted as a prohibited tying practice (known as "kkyeokgi"). In response, a partial amendment to the Financial Consumer Protection Act was proposed to clearly define the act of recommending guarantee-type products directly related to loan products, such as credit life insurance, which have a protective effect for financial consumers, as an exception to unfair solicitation under current law when financial institutions sell loan products.

Since credit life insurance can prevent the inheritance of debt, it is already well established in major foreign countries such as the United States and Japan. In Japan, those who take out a mortgage loan are required to subscribe to it.

Currently, among domestic commercial banks, only two provide credit life insurance services free of charge: KB Kookmin Bank (in partnership with KB Life Insurance) and Shinhan Bank (in partnership with BNP Paribas Cardif Life Insurance). The KB credit life insurance additional service is offered to new customers who have taken out household credit loans from Kookmin Bank. Kookmin Bank covers 100% of the insurance premium for one year, allowing customers to enjoy the benefits of the "KB Credit Life Insurance Additional Service" free of charge. If the insured experiences an unexpected accident (death or disability with a disability rating of 80% or higher), KB Life Insurance will repay the loan amount up to 20 million KRW on their behalf. The eligible age for subscription is from 19 to 65 years old.

A representative from KB Life Insurance stated, “As the burden of household loans has recently increased, we launched the credit life insurance additional service to develop a product that can fulfill the public function of insurance. We plan to expand credit life insurance partnerships to other commercial banks and internet-only banks in the future.”