"Receive Death Benefits Like a Pension While Alive"... Product Praised by President Lee to Launch at End of Month

Death Benefit Securitization Set for Launch at the End of This Month

President Lee Jaemyung praised the death benefit securitization system as a "good policy" regarding securitization, and this system will officially launch on October 30.

According to the life insurance industry on October 12, the Financial Services Commission, along with five major life insurers-Samsung Life Insurance, Hanwha Life Insurance, Kyobo Life Insurance, KB Life Insurance, and Shinhan Life Insurance-will introduce a policy rider for annual payment-type death benefit securitization on October 30.

The main feature of this rider is to convert a portion of the death benefit from a whole life insurance policy into annual or monthly payments, thereby bridging the gap in retirement income. The plan is to sequentially introduce the monthly payment type early next year.

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The "death benefit securitization" system allows policyholders who have completed premium payments on their whole life insurance to receive up to 90% of the death benefit in advance, similar to a pension. In other words, policyholders can utilize their death benefit, which is posthumous income, as a pension or living expenses while still alive. The remaining 10% will be paid as a death benefit upon passing.

This serves as a "conversion to living income" tool to fill income gaps amid rapid population aging and a high elderly poverty rate. Eligible policies include: fixed-interest whole life insurance, policies with completed premium payments (at least 10 years of contract and 10 years of payments), the policyholder and insured must be the same person, no outstanding loans, the insured must be at least 55 years old, and the death benefit must not exceed 900 million won. The eligibility age, initially set at 65, has been lowered to 55 to address the income gap between retirement and the start of pension payments.

The product to be launched first this month is the "annual payment type," which allows policyholders to receive 12 months' worth of pension payments in a lump sum, with expected payment units ranging from 1 million to 3 million won.

Insurance certificate image. Photo by Yonhap News

The five life insurers will first launch the annuity-type product, then expand next year to service-type products (such as care and healthcare services offered below cost). Policyholders can freely choose the securitization ratio up to a maximum of 90%, and insurers will provide simulation tables comparing payment amounts based on the chosen ratio and period.

For example, if a policyholder who enrolled at age 30, paid 87,000 won per month for 20 years (totaling 20.88 million won), and holds a whole life policy with a 100 million won death benefit, chooses to securitize 70%, they can receive an average of about 1.64 million won annually (a total of 32.74 million won) over 20 years starting at age 55.

Under the same conditions, if payments start at age 65, the annual average is about 2.18 million won (a total of 43.70 million won), and at age 75, about 2.68 million won annually (a total of 53.58 million won). The older the policyholder, the larger the accumulated reserve, resulting in higher payments. The remaining 30 million won of the death benefit can be used for funeral expenses or inheritance tax.

However, since the death benefit becomes a savings-type insurance upon securitization, policyholders may be subject to interest income tax. Therefore, it is important to check one's premium payment history in advance. While whole life insurance is a protection-type policy, once securitized, it is treated as a savings-type policy and may be taxed, unlike protection-type insurance, which is tax-exempt.