"Credit Insurance to Prevent 'Debt Inheritance'... Focus on Utilization by Young Adults with Increased Loans" (Comprehensive)

Japan, Development of Group Credit Insurance for Long-Term Mortgage Loans
"Should Be Applied to Housing Loans for Young Adults"

[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 'dormant.'

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, while Cardif Non-Life Insurance handles credit non-life insurance that repays remaining installment payments on car loans.

However, because enrollment must occur at the time of loan issuance, it has been embroiled in controversies over incomplete sales due to 'tying' practices, and as of 2019, the premium income remained 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 enroll in this insurance, which supports loan repayment if the customer dies or suffers a disability of 80% or more due to an unexpected accident, making loan repayment difficult. The number of enrollments doubled within three months since December last year, attracting attention.

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

In Canada, the mortgage credit life insurance subscription rate reaches 9%, and in Japan, the group credit life insurance market related to long-term mortgage loans is well developed, with the Japan Housing Finance Agency encouraging enrollment.

In particular, credit insurance is considered suitable for South Korea's conditions, where household loans have surged in recent years. It allows for preparation against risks arising from the absence of the head of the household while in debt.

Recently, the government decided to introduce ultra-long-term mortgage loans of over 40 years, and as loan periods lengthen, the risk of being unable to repay debts 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. It is necessary to enable the use of credit insurance for credit loans or mortgage loans targeting young people, whose loan increases are evident recently."

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