[Practical Asset Management] Managing Death Benefits Like a Pension With Trusts... Expanding Retirement Options in an Aging Society

Death Benefits Usable While Alive
Trust System Opens New Paths for Asset Management and Inheritance Planning
Need to Expand Trust Coverage from Death Benefits to Disease and Accident Insurance Benefits

Starting from October 30, it will be possible to use death benefits like a pension while still alive. Entrusting insurance claim rights to an insurance company through a trust is also worth considering as an investment option. While still alive, the policyholder can set up how to distribute the death benefits among their spouse and children, and the insurance company will manage and operate the funds accordingly. This is similar to how securities firms or asset management companies operate entrusted assets. Although the domestic market is still in its early stages, major life insurers such as Samsung Life Insurance and Kyobo Life Insurance have begun launching related products, making this a trend worth watching.

According to the Low Birthrate and Aging Society Committee, the assets held by elderly dementia patients (dementia money) amount to approximately 154 trillion won. Insurance claim rights trusts carry less risk of asset freezing compared to dementia money. Getty Image Bank

An Era Where Death Benefits Can Be Used While Alive... Synergy with Trusts

Since November last year, the government has allowed insurance claim rights trusts. For general death coverage of 30 million won or more, regulations have been relaxed to allow the policyholder to change the beneficiary to a trustee and then designate their spouse or direct family members as trust beneficiaries. The trust company operates the insurance proceeds like an asset management firm and distributes them to the beneficiaries designated in advance by the policyholder.

When insurance claim rights trusts were first introduced at the end of last year, they drew attention because they allow inheritance assets to be distributed annually or monthly to young children who may lack financial sense, rather than all at once. With financial authorities now permitting the use of death benefits while alive, the financial sector expects synergy with trust products. For policyholders, this means that even if unexpected situations arise, their spouse and children can use the insurance money as intended during their lifetime, and it helps prevent unforeseen inheritance disputes.

As the number of dementia patients increases, the insurance claim rights trust market has started to attract attention. According to the Low Birthrate and Aging Society Committee, assets held by elderly dementia patients ("dementia money") amount to approximately 154 trillion won, and the industry estimates this will grow to 172 trillion won this year. The scale of death benefit contracts held by life insurers is also significant. According to the Financial Supervisory Service's Financial Statistics Information System, as of the end of June, the outstanding balance of death benefit contracts at 22 domestic life insurers stood at 880.7 trillion won.

Unlike "dementia money," insurance claim rights trusts allow the policyholder to designate a trustee and predetermine how to manage and use the assets while still mentally competent. The risk of asset freezing, as seen with dementia money, is also much lower. This is an attractive feature for elderly couples living alone or those nearing retirement.

The Domestic Market Is Still in Its Infancy... Growth Speed Is Key

Despite optimistic forecasts that the dementia market will grow explosively as the population ages, the domestic insurance claim rights trust market has seen slow growth.

Leading companies such as Samsung Life Insurance and Kyobo Life Insurance are showing results. According to the life insurance industry, as of the end of last month, Samsung Life Insurance had accumulated 1,110 insurance claim rights trust contracts, totaling 355.4 billion won. As of the end of August, Kyobo Life Insurance had 615 contracts, amounting to 85.45 billion won. Hanwha Life Insurance, Mirae Asset Life Insurance, and ABL Life Insurance have also launched related products. Heungkuk Life Insurance plans to begin selling products next month after completing related system improvements.

The advantage is that policyholders can continue to manage insurance proceeds smoothly even after developing dementia, without burdening their spouse or children. However, the relatively high fees are an issue. According to the industry, trust fees covering contract, execution, and management are in the 1% range.

Recently, major financial groups have been actively targeting senior customers to secure non-bank interest income. Insurance companies affiliated with financial holding groups, as well as the broader insurance industry, are accelerating the expansion of their trust portfolios.

Samsung Life Insurance obtained a comprehensive trust business license as early as 2007 and has since built a diverse trust portfolio and organization, not only for simple death coverage but also for will substitutes, dementia, and gifts. Kyobo Life Insurance also received approval for property trusts last year, establishing a comprehensive property trust business system that covers both monetary and property trusts.

"Regulatory Easing Needed, Including Expansion to Disease and Accident Insurance Benefits"

Insurance experts advise that to maximize the flexibility of trusts, the scope should be expanded beyond death benefits to include disease and accident insurance benefits. There are also calls for bold policy support, such as lifting the minimum trust amount regulation of 30 million won and permitting policy loan provisions.

It has also been suggested that insurance planners should be granted qualifications as trust investment solicitors, and ultimately, trust business should be designated as an ancillary work for insurance companies, thereby easing the layers of accumulated regulations.

Ji Gwangwoon, a professor at Kunsan National University’s Department of Law, said, "It is time for legal and institutional support to enable consumers to use insurance claim rights trusts as a useful tool for managing insurance proceeds and passing on assets," adding, "Strict limitations on trust targets should be expanded from death benefits to disease and accident insurance benefits, and the legal restriction on the minimum trust amount (30 million won) should be abolished so that insurance companies can autonomously set their own minimum trust criteria."