'Kkeokgi Controversy' Credit Insurance in Standstill... "Focus on Utilization by Youth with Increased Loans"

US and Others' 'Debt Inheritance' Prevention Effect
"Should Apply to Long-Term Housing Loans"

[Asia Economy Reporter Oh Hyung-gil] As housing-related loans among young people surge, 'credit insurance,' which pays off loans when the borrower dies or is injured and unable to repay, is gaining attention. Since loan periods are getting longer and the likelihood of unexpected accidents increases, there are calls to introduce group credit insurance specialized for long-term mortgage loan repayments of over 10 years to reduce the burden of debt repayment.

According to the insurance industry on the 28th, credit insurance is a product that repays debt with insurance money when the borrower faces difficulties in debt repayment due to death, illness, injury causing loss of income, or involuntary unemployment. Although it has been sold in South Korea since the 1980s, it has been virtually in a 'dormant' state.

Currently, BNP Paribas Cardif Life Insurance and Cardif Non-Life Insurance are the only insurers selling credit insurance domestically. Cardif Life Insurance has been selling credit life insurance since 2003, and Cardif Non-Life Insurance handles credit non-life insurance that repays remaining installment payments on car loans.

However, because subscription is required at the time of loan, it has been embroiled in controversies over incomplete sales due to 'tying' practices, and as of 2019, the scale of earned premiums remains low, below 500 million KRW.

Recently, fintech company 'Finda,' which provides loan brokerage services, has been operating a free group credit life insurance service, drawing renewed interest. Customers who take loans through Finda can subscribe to this insurance, and if they die or suffer a disability of 80% or more due to an unexpected accident, making loan repayment difficult, the insurance supports repayment of the customer's loan. The number of subscriptions doubled within three months since December last year, attracting attention.

The insurance industry explains that credit insurance is a product that can prevent the 'inheritance of debt.' In the United States, it started in 1917 with the concept that 'debt should not be inherited,' and by 2018, the premium scale had reached 1.7 billion USD (about 1.9 trillion KRW), becoming widespread.

In particular, credit insurance is considered suitable for South Korea's conditions, where household loans have surged in recent years. It can prepare for the risk of the absence of the breadwinner while debt remains. Recently, as the government decided to introduce ultra-long-term mortgage loans of over 40 years, the loan period is lengthening, and the risk of being unable to repay debt due to death, serious illness, or involuntary unemployment is expected to increase.

Loan institutions can also secure credit soundness as insurers guarantee the risk of non-performing loans. Lee Kyung-hee, a research fellow at the Korea Insurance Research Institute, said, "Credit insurance not only prevents debt inheritance to family or survivors but also contributes to housing stability and prevents the risk of customer credit deterioration," adding, "Credit insurance should be utilized for credit loans or mortgage loans targeting young people, whose loan increases are clear recently."

[Image source=Yonhap News]

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