"Exchange Rates Keep Falling, Is Dollar Insurance Still a Good Choice?" (Comprehensive)

Dollar Insurance Gaining Attention Amid Low Interest Rates
Won-Based Premiums and Benefits Vary with Exchange Rates
Financial Authorities Issue Consumer Alert Over Incomplete Sales Concerns

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] As the won-dollar exchange rate has recently plunged, inquiries from customers who have purchased dollar insurance expressing concerns about losses have surged. There are growing worries that disputes may arise from incomplete sales of dollar insurance, following numerous cases of financial product investment losses this year.

With increasing interest in securing dollar assets, the dollar insurance market has recently grown rapidly, but the perception of these financial products as tools for 'exchange rate tech' remains unchanged.

According to the Financial Supervisory Service and the insurance industry on the 9th, the scale of dollar insurance subscriptions in the first half of this year is expected to exceed last year's sales performance (969 billion KRW), reaching 757.5 billion KRW.

Currently, about ten insurance companies are selling dollar insurance. The market, which was dominated by foreign insurers, has seen intensified sales competition since last month with domestic companies like Samsung Life Insurance joining.

In fact, the number of dollar insurance subscriptions (new contracts) surged from just 3,181 cases in 2015 to 63,000 cases last year alone. Dollar insurance is a product where all contract details, including premiums, insurance benefits, and surrender values, are denominated in dollars. Since the monthly premiums converted into dollars are paid in Korean won, the premium amount varies depending on exchange rate fluctuations.

As the number of dollar insurance subscribers has increased significantly, inquiries about losses due to the recent sharp drop in exchange rates have flooded sales companies.

A representative from Life Insurance Company A said, "There has been a noticeable increase in customers asking why their premiums have changed and whether the exchange rate drop means a principal loss," adding, "Many customers also want forecasts on when the exchange rate will rise as it has recently fallen."

Warning Against Incomplete Sales Disguised as Financial Investment Tools

The current won-dollar exchange rate has not fallen to pre-COVID-19 levels. The exchange rate, which soared to the 1,280 KRW range in March, marking the highest point of the year, dropped to the 1,085 KRW range on the 8th of this month. Although dollar insurance is based on the dollar, a representative safe asset, it is directly affected by exchange rate fluctuations due to the won-conversion premium payment and benefit provisions.

For example, when subscribing to a single premium dollar insurance with a minimum premium of 10,000 dollars, about 12.8 million KRW had to be paid in March, but as of the 4th, the premium was 10.8 million KRW, showing differences depending on the timing.

In the case of monthly premiums, the premium amount changes each time according to exchange rate fluctuations, with premiums decreasing when the exchange rate falls. Conversely, if the exchange rate rises, additional premiums may be required.

Especially at maturity refund, exchange gains or losses may occur depending on the exchange rate. If the exchange rate continues to fall as it is now, exchange losses are also a concern. There is no method provided to prevent losses from exchange rate fluctuations at the time of insurance benefit payment.

Accordingly, the financial authorities issued a consumer warning last October, stating that foreign currency insurance is not a tool for 'exchange rate tech.' With growing interest in dollar insurance recently, incomplete sales are increasing as it is introduced as a high-yield financial investment tool. The financial authorities plan to impose strict sanctions on insurers suspected or found to have committed illegal acts during the foreign currency insurance sales process through on-site inspections.

An insurance industry official said, "Dollar insurance is based on the dollar but is clearly an insurance product," adding, "Unlike savings, it is a long-term product, so short-term exchange rate fluctuations have less impact. It is better to consider subscribing from the perspective of asset allocation management or dollar utilization rather than expecting exchange gains from long-term exchange rate fluctuations."

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