Warning on Increasing Insurance Policy Loans... "If Not Repaid, Pension May Be Withheld"

FSS Issues Consumer Precautions Based on Major Complaint Cases
Outstanding Policy Loans Up by 3.5 Trillion Won in Two Years...
"Manage Loan Repayment and Unpaid Interest"

Last year, the outstanding balance of insurance policy loans (contract loans) reached 71.6 trillion won, increasing by 3.5 trillion won (5.1%) over two years. Financial supervisory authorities have urged caution, warning that failure to repay contract loans on time may result in not receiving insurance payouts properly, and prolonged non-payment of interest could lead to early termination of the contract.

On the 1st, the Financial Supervisory Service (FSS) provided guidance titled "Consumer Precautions for Insurance Policy Loans Based on Major Complaint Cases."

Contract loans are a system where loans are provided using 50-90% of the surrender value as collateral, based on the premiums paid. The outstanding balance of contract loans has recently surged. It increased by 5.1%, from 68.1 trillion won at the end of 2022 to 71.6 trillion won at the end of last year.

The problem is that if important details are not understood during the process of taking out a contract loan, consumers may face disadvantages such as non-payment of insurance benefits or contract termination.

First, if an insurance policy loan taken from an annuity insurance is not repaid before the annuity starts, restrictions on receiving the annuity may apply. For products like lifetime annuities, where early termination is not possible, the loan period is limited to before the annuity commencement, so a repayment plan must be established.

If interest on the loan is not paid, unpaid interest is added to the principal. If interest is not paid for a long time and the principal plus interest exceeds the surrender value, the insurance contract may be terminated early.

Be cautious about canceling automatic transfers as well. If you apply for automatic transfer of interest payments, even after repaying the related loan, interest on new loans may continue to be withdrawn without the depositor's consent.

The FSS urged, "If the contract loan borrower and the interest payment account holder are different, the depositor must directly apply to the insurance company to cancel the automatic transfer."

There are also products where insurance policy loans are restricted, so caution is necessary. Pure protection insurance without maturity refunds, indemnity health insurance, and expiring (pure protection type) riders may have loan restrictions.

An FSS official said, "It is necessary to check whether the product allows insurance policy loans when purchasing insurance."