"'Disappears After the 13th'... Surge in Sold-Out Marketing for '10% Harmless Insurance' (Comprehensive)"

No Surrender Value but Lower Premiums... Beware of Incomplete Insurance Sales

[Asia Economy Reporter Oh Hyung-gil] "The no-surrender refund type children’s insurance with a 10% refund rate will disappear after August 13. If you are preparing to subscribe to a no-surrender product, you should sign up quickly."

Since mid-month, sales of some no-surrender refund type products have been suspended, leading to aggressive clearance marketing. Consumers are advised to be cautious about incomplete sales tactics urging them to hurry and subscribe by claiming that premiums will increase after sales stop.

According to the insurance industry on the 2nd, the Financial Supervisory Service (FSS) delivered guidelines last month to all insurers regarding compliance when developing no (or low) surrender refund type products. The guidelines included a ban on selling 10% refund type products among refund-type products.

The no-surrender refund type is a product where no money (surrender refund) is returned if the contract is canceled during the premium payment period, but the premium is on average about 30% cheaper than the standard type. Especially, if the full payment period is completed, a refund is given, and since the refund rate is higher than the standard type, it can be mistaken for a savings-type insurance. Therefore, the financial authorities revised the insurance supervision regulations last November to prevent the refund rate from exceeding the standard type.

In response, insurers introduced 10% and 50% refund type products with significantly lowered refund rates after payment to reduce premiums. While there is no refund during the premium payment period, these products return 10% or 50% of the paid premiums after full payment, in exchange for lower premiums.

For example, when a 30-year-old woman subscribes to a 20-year payment children’s insurance (cancer diagnosis benefit 70 million KRW, cerebrovascular disease diagnosis benefit 30 million KRW), the premium for the no-surrender refund 10% type is in the 82,000 KRW range, and the 50% type is in the 92,000 KRW range. After 20 years of full payment, the 10% type returns 2.46 million KRW, which is 12% of the paid premium (19.78 million KRW), and the 50% type returns 12.34 million KRW, half of the paid premium (22.21 million KRW).

The financial authorities view this method as potentially causing consumer harm because the refund amount is less than the paid premium, and it could also impose financial burdens on insurers. Therefore, they have restricted sales of the 10% type. They have also announced plans to improve the 50% refund type products next month.

The no-surrender type is designed considering the lapse rate, which is how many customers cancel their insurance at certain points after subscription. If more customers maintain their policies rather than lapse, the loss ratio increases, and the financial burden of setting aside reserves for insurance payments also grows, potentially causing long-term problems.

The authorities also communicated that if sales of no-surrender products surge during the remaining period, insurers must submit explanatory materials, establishing measures to prevent the use of clearance marketing. However, concerns have arisen that some corporate agencies (GA) are promoting sales aggressively, which could lead to consumer harm.

An official from a non-life insurance company said, "We have warned GAs to prevent overheating of promotional activities ahead of the sales suspension, but some companies are trying to meet their targets," adding, "It is better to carefully consider whether the insurance is truly necessary before deciding to subscribe."

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