Dollar Insurance Accumulated 5 Trillion Won Over 20 Years... "Do You Need Dollars?"

Authorities to Promote Improvements in Foreign Currency Insurance System Next Year

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] Since dollar insurance (foreign currency insurance) first appeared in Korea in 2003, the total premiums paid have exceeded 5 trillion won over 20 years. This is because it attracted attention as a 'currency tech' product, allowing premiums to be paid in dollars and insurance benefits to be received in dollars later.

However, financial authorities have warned that due to the risk of sudden exchange rate fluctuations being fully borne by subscribers, caution is needed when subscribing, and they have initiated system improvements.

According to the Financial Supervisory Service on the 25th, since the sale of foreign currency insurance began, the total premiums collected by insurers until last September amounted to 5.5698 trillion won. The total number of contracts is 338,836, with long-term insurance contracts of 30 years or more accounting for nearly 92.3%.

MetLife, Prudential Life, AIA Life, ABL Life, DGB Life, Shinhan Life, KB Life, Samsung Life, and others are all selling about 20 products.

However, from now on, to sell dollar insurance, insurers must verify the actual demand and are obligated to explain in detail the premiums, insurance benefits, and surrender refunds according to exchange rate fluctuations.

In particular, if dollar insurance is sold inappropriately considering the consumer's financial situation or experience with financial products, penalties will be imposed under the Financial Consumer Protection Act.

Sales Status of Dollar Insurance Products (Source: Financial Supervisory Service)

Dollar Insurance "Has Strong Investment Characteristics"

The reason financial authorities have initiated system improvements is that dollar insurance has an investment nature.

Because dollar insurance has a long maturity, the risk due to exchange rate fluctuations increases. Although insurance is meant to protect against risks, dollar insurance differs in that consumers are exposed to exchange rate risk.

However, financial authorities view that for actual demanders who intend to use foreign currency, such as for overseas migration or studying abroad, the impact of exchange rate fluctuations is negligible.

Also, the insurance benefits received can exceed the premiums paid due to exchange rate fluctuations. Like variable insurance, where benefits vary with the underlying asset, dollar insurance has an investment nature and is a product that can expect foreign exchange gains in the future.

Furthermore, if exchange rate fluctuations increase the number of dollar insurance cancellations and reduce new subscriptions, insurers will have no choice but to sell long-term foreign currency assets, leading to foreign currency liquidity risk.

According to the system improvements, the choice of consumers intending to subscribe to dollar insurance will become more important, the insurance industry interpreted. An industry official said, "When deciding whether to subscribe to dollar insurance, one should consider the purpose of subscribing, experience with foreign currency investments, and the ability to pay premiums," adding, "Surrender fees are high, and due to exchange rate fluctuation risks, significant financial losses may occur upon cancellation."

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