Insurance Companies Join Interest Rate Competition... 5% Savings Insurance Products Appear

Seoul city Woori Bank branch view [Image source=Yonhap News]

[Asia Economy Reporter Changhwan Lee] As the base interest rate rises rapidly, life insurance companies have also entered the competition to sell high-interest savings insurance. However, unlike regular savings or time deposits, savings insurance deducts expenses such as business costs before accumulating the balance, so it is pointed out that customers should check the actual yield before subscribing.

According to the life insurance industry on the 22nd, IBK Pension Insurance plans to sell savings insurance with an annual interest rate of 5.3% up to a limit of 500 billion KRW starting next week. ABL Life is also considering launching savings insurance with an annual interest rate around 5%. This is the first time in about 11 years since 2011 that savings insurance with an interest rate in the 5% range has been introduced.

Previously, Fubon Hyundai Life (4%), Hanwha Life (4.5%), Dongyang Life (4.5%), and Heungkuk Life (4.2%) launched savings insurance with annual interest rates in the 4% range. Most of these products were so popular that they sold out shortly after release.

Savings insurance is similar to bank fixed deposits or savings accounts but combines characteristics of insurance products such as death benefits. If the subscriber dies before maturity, the accumulated savings are returned with additional compensation.

Insurance companies are competing to sell savings insurance because recent increases in market interest rates have led to the emergence of bank savings and time deposits with interest rates in the 4-5% range, raising concerns about losing customers.

There is also an intention to recapture funds as savings insurance products aggressively sold by life insurers in the early 2010s mature. As savings insurance worth several hundred billion KRW mature for each company, large sums temporarily leave, potentially causing liquidity issues.

Most products are launched as bancassurance products sold through banks and are targeted mainly at existing customers whose products are maturing as well as bank savings and time deposit customers.

However, it is pointed out that customers should fully understand the characteristics of savings insurance before subscribing. Due to the nature of insurance products, not all premiums paid by the policyholder are accumulated; instead, the balance after deducting guaranteed premiums and business expenses is accumulated.

For example, in the case of savings insurance with an annual compound interest rate of 4.5%, the actual interest rate after deducting premiums and business expenses is about 3.97% compound annual rate over five years.

Some insurance companies have been criticized for emphasizing only the fixed or nominal interest rates without properly informing customers about these product characteristics.

An official from the Financial Supervisory Service said, "When subscribing to savings insurance, it is necessary to check the actual yield rather than the applied interest rate," and added, "You should carefully read the product description and insurance policy before subscribing."

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