Refund Rates for 'Mu·Jeohaji Insurance,' Previously Disguised as Savings Insurance, Will Decrease

October Insurance Business Supervision Regulation Amendment
Adjusted Within Standard Insurance Refund Rate
Active Response to Discontinued Marketing Before Amendment

[Asia Economy Reporter Oh Hyung-gil] The refund rates of no-surrender and low-surrender value insurance policies, which have been criticized for being disguised and sold as savings products due to their high refund rates, will not be allowed to exceed the standard refund rates starting this October.

On the 27th, the Financial Services Commission announced that it will publicly notify a revision to the Insurance Business Supervision Regulations to improve the product structure of no-surrender and low-surrender value insurance policies in order to minimize elements of incomplete sales.

No-surrender and low-surrender value insurance policies are characterized by lower premiums while providing the same coverage as standard insurance policies that pay standard surrender values, but offer little or no refund upon early termination. Because of this, the refund rates after the premium payment period were higher than those of standard insurance policies.

Accordingly, the authorities decided to restrict the design of low-surrender value insurance policies, which have no refund or refunds less than 50% of the standard insurance, to be within the refund rates of standard insurance policies.

For example, for a 40-year-old male with a 20-year payment period and a coverage amount of 10 million KRW for whole life insurance, the premium for a standard insurance policy is 23,300 KRW. After 20 years of payment, the refund amount is 5,438,900 KRW, resulting in a refund rate of 97.3%.

The no-surrender refund insurance premium is 16,900 KRW, and although there is no surrender refund during the payment period, the refund amount after 20 years of payment is 5,438,900 KRW, approaching a refund rate of 134.1%.

However, going forward, the refund amount for no-surrender refund insurance cannot exceed 3,384,723 KRW, which corresponds to the standard insurance refund rate of 97.3%. Refund amounts after 30 or 40 years of payment will also decrease according to the standard insurance refund rates.

The authorities expect that this measure will resolve the problem of no-surrender and low-surrender value insurance being sold with an overemphasis on high refund rates, thereby preventing incomplete sales.

Additionally, the financial authorities will clarify the definition of no-surrender and low-surrender value insurance and strengthen internal controls for calculating optimal surrender rates.

No-surrender and low-surrender value insurance policies are defined as insurance that uses surrender rates in premium or benefit (annuity) calculations, as their purpose is to guarantee "affordable premiums" or "high insurance benefits (annuity amounts)," excluding variable insurance from the design targets.

Furthermore, the insurance product review standards will be revised to add criteria related to the appropriateness of optimal surrender rate calculations.

A Financial Services Commission official stated, "After the public notice, we plan to implement the changes in October following legislative review and FSC approval. We will continuously monitor pre-implementation marketing activities and respond actively if signs of incomplete sales or excessive competition are detected."

This content was produced with the assistance of AI translation services.