[Become an Insurance Insider] 'Discontinued' No-Surrender Insurance: Should You Definitely Enroll This Month?

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[Asia Economy Reporter Oh Hyung-gil] Insurance products with no surrender value, which offer the same coverage at a lower premium but do not refund any money if the contract is canceled during the premium payment period, will soon disappear. This is due to strengthened regulations aimed at eliminating controversies over incomplete sales, where these products were marketed as savings products by emphasizing high refund rates.

Marketing campaigns have emerged portraying this month as the 'last chance' to subscribe to no-surrender insurance, persuading consumers with explanations that they will not be able to join after this month. So, should you really rush to sign up for no-surrender insurance?

According to the insurance industry on the 6th, no-surrender or low-surrender products offer premiums that are 20-30% cheaper than standard plans, but if the contract is canceled early during the payment period, the insured either receives no refund or only a partial refund of the premiums paid.

However, the coverage remains the same, and the refund rate after the payment period is increased, providing about 40% more refund than the standard plan.

After the Financial Services Commission announced measures to promote no-surrender refund insurance products, sales began at the end of 2015, and over 2 million policies were sold last year.

However, controversies over incomplete sales continued as cases arose where customers, having only heard agents' explanations that maturity refunds were higher than general savings insurance, ended up receiving no refund at all when canceling early.

In October last year, the Financial Services Commission issued a consumer alert stating, "Concerns are growing over complaints due to incomplete sales, such as guiding no- or low-surrender whole life insurance as if it were savings insurance, which has little or no surrender value."

Despite the consumer alert, sales continued, and the authorities eventually announced a legislative notice to revise the insurance supervision regulations to align the refund rates of no- or low-surrender insurance with those of general insurance. This regulation is expected to be implemented in October after review by the Ministry of Government Legislation, and many no-surrender products are expected to be revised sequentially.

The new insurance supervision regulation that triggered the no-surrender insurance clearance marketing limits the refund rate after the payment maturity to be within the standard insurance level, while premiums will be further reduced. This means it is not a complete loss.

Comparison of Standard and Non-Forfeiture Benefit Insurance (Source: Financial Supervisory Service)

For example, a 40-year-old male subscribing to a standard insurance product with a coverage amount of 10 million KRW and a 20-year term, paying 23,300 KRW monthly (applied interest rate 2.5%), would receive a refund of 5,438,900 KRW (refund rate 97.3%) after 20 years. The no-surrender refund insurance for the same period must be designed with a refund rate within 97.3%.

The monthly premium for the no-surrender refund insurance is 14,500 KRW, and the refund after 20 years is 3,384,723 KRW (97.3%).

Conversely, if subscribed before the revision of the supervision regulation, the premium is 16,900 KRW, and the refund can be as high as 5,438,900 KRW (134.1%).

Because of this, marketing has emerged suggesting that you must subscribe before clearance to receive a higher surrender refund.

However, insurance experts point out that while it may be acceptable if the contract is maintained and canceled after 20 years, the risk of not maintaining the contract long-term is much greater. Even with a long-term plan for premium payments, decisions should be made carefully considering future expected income.

They especially advise that after the product revision, since premiums become cheaper, it is unnecessary to subscribe based solely on refund rates.

An insurance industry official said, "If maintained until maturity, no-surrender refund products are advantageous, but if canceled before maturity, no refund is received. Also, the refund after maturity is unlikely to be satisfactory compared to other financial products relative to the subscription period."

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