"Tears of Cancellation Surge as People Say 'No Money to Pay Insurance Premiums' (Comprehensive)"

Life Insurers, Surrender Refunds Total 18.6216 Trillion KRW
Non-Life Insurers, Long-Term Cancellation Refunds 7 Trillion KRW
Concerns Over Household Economic Deterioration Due to Prolonged COVID-19

[Asia Economy Reporter Ki Ha-young] Sun Woo-jin (45, pseudonym), who runs a beauty salon in Jung-gu, Seoul, recently canceled her insurance policy. Since the outbreak of the novel coronavirus disease (COVID-19), customers have sharply declined, making it difficult to cover even the store rent, let alone labor costs and living expenses. On top of that, bank loan conditions have become stricter, making new loans an impossible dream. Despite the structure inevitably leading to losses, she had no choice but to break the insurance policy with tears because she could not afford the premium payments and needed money immediately. Sun said, "It is unfortunate, but I had no choice but to simply cancel the insurance products I had been paying into."

As household finances worsen due to the impact of COVID-19, the number of people canceling insurance policies prematurely or taking loans against their insurance payouts has surged. The increase in cancellations of insurance contracts, considered a last resort, or in insurance policy loans?loans against insurance contracts during recessions?reflects the harsh economic realities people are experiencing. The industry also reports that this year, cases of insurance cancellations to raise funds for stock investments amid the "Young Kkul" (borrowing to the limit) and "Debt Investment" trends have increased.

According to the Life Insurance Association on the 12th, the surrender value?the amount refunded to policyholders when they cancel their insurance prematurely?is rising. From January to August this year, the surrender value paid by 24 domestic life insurance companies totaled 18.6216 trillion won, an increase of 3.38% (609.4 billion won) compared to the previous year. The surrender value is refunded after deducting operating expenses and cancellation fees by the insurance company. Therefore, if the insurance contract is canceled before maturity, the policyholder inevitably suffers a loss.

The situation is similar in the non-life insurance industry. According to the General Insurance Association, the long-term surrender value paid by major domestic non-life insurers until June this year reached 7 trillion won, an increase of 8.55% (551.2 billion won) compared to the previous year. The long-term surrender value refers to the amount paid by insurers when policyholders cancel long-term insurance products.

The Increasing Trend of 'Insurance Policy Loans,' a Recession-Type Loan

Insurance policy loans, which allow borrowing against the surrender value, are also on the rise. In the third quarter, the new loan amount from major life insurers such as Samsung Life, Kyobo Life, and Hanwha Life reached 5.8569 trillion won, a sharp 29.8% increase from the previous quarter's 4.5131 trillion won. Insurance policy loans allow policyholders to borrow against the premiums they have paid so far, within the surrender value. Interest rates range from 4% to 10%, higher than those of commercial banks, but these loans are easy to obtain regardless of credit or collateral, making them popular among ordinary people who need quick cash. They tend to increase when the economy is weak, hence the term "recession-type loan."

The surge in premature insurance cancellations and loans against insurance reflects the worsening household economy. According to a survey conducted last year by the Korea Consumer Agency targeting 500 consumers aged 30 to 60 who had experience canceling life insurance, 44% responded that they canceled due to economic difficulties, the need for a lump sum, or difficulty paying premiums. Those who canceled received back only about 70% of the premiums paid on average.

Some analyses suggest that the number of "retail investors" canceling insurance policies for stock investments is also increasing. In the case of variable insurance, there are cases of cancellations to recover the principal due to stock price increases and to make new investments.

An industry insider said, "Insurance policy loans are used by ordinary people who find it difficult to secure a lump sum immediately or feel burdened by monthly premium payments. Although policy cancellations result in losses because the principal is not fully recovered and coverage disappears, due to the prolonged economic downturn, ordinary people are forced to choose cancellation as an unavoidable option."

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