Introduction of Insurance Claim Rights Trust from the 12th
Applicable Only to General Death Insurance Benefits
# In 2019, a famous female idol singer took her own life, and her biological mother, who had been out of contact for 20 years, appeared demanding inheritance assets. This news sparked public outrage nationwide.
# An 80-year-old biological mother, who had been separated from her son since he was 2 years old, suddenly appeared 50 years after her son's death to claim his life insurance payout. In 2023, the court mediated for the mother to share the insurance money with the son’s family, but she refused, causing another nationwide controversy.
Going forward, as life insurance payouts can be entrusted to financial institutions, disputes over insurance money among relatives are expected to decrease.
On the 11th, the Financial Services Commission announced that starting from the 12th, amendments to the 'Enforcement Decree of the Act on Capital Markets and Financial Investment Business' and the 'Financial Investment Business Regulations' will be introduced to allow life insurance payouts to be managed in the structure desired by the deceased and paid to designated beneficiaries (insurance claim rights trust).
Until now, South Korea did not have regulations for insurance claim rights trusts, so banks and insurance companies could not offer such trusts. With the enforcement of the amendments, a legal foundation has been established to launch insurance claim rights trusts.
According to the amendments, trusts are limited to general death coverage of 30 million KRW or more. The contract must have the policyholder, insured, and settlor as the same person, and beneficiaries are restricted to direct ascendants/descendants or spouses.
Additionally, if the insured’s children are minors or have mental disabilities after the insured’s death, insurance claim rights trusts can be used to ensure stable payment of insurance money to the beneficiaries.
In particular, trusts can be set up to prevent ex-spouses from seizing insurance money left for children after divorce, or to give insurance money to grandchildren instead of children who have failed in business. The Financial Services Commission explained that this will contribute to improving the welfare of bereaved families such as minors and disabled persons who lack experience or ability in asset management.
The amendments also specify investor protection and strengthened risk management obligations for financial companies when operating maturity mismatches in wrap accounts and trusts. Prior consent from customers is required for maturity mismatch investments through trusts or wrap accounts.
Financial investment businesses entering into trust or wrap contracts must mandatorily establish risk management standards. These standards must include adhering to the maturity agreed upon with the customer and minimizing investor losses by changing the operation method of financial investment products with maturities longer than the trust or wrap contract period in case of market fluctuations such as interest rate changes.
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