Will Insurance Companies Consider Offering Personal Loan Rates in the 1% Range... Currently Deliberating

[Asia Economy Reporter Changhwan Lee] Insurance companies are deliberating over the launch of low-interest insurance policy loan products. The intention is to allow people in urgent need of money to borrow at low interest rates without canceling their insurance policies, but the time and cost required for system development are considerable, so it is expected to take a significant amount of time before the actual product is launched.

According to the insurance industry on the 16th, the Financial Supervisory Service and major life insurance companies recently formed a task force (TF) and have discussed several times the plan to launch ultra-low interest insurance policy loans.

Insurance policy loans refer to borrowing money from an insurance company using an insurance contract as collateral. Since it is relatively easy to borrow money by phone or internet without canceling the insurance, many financial consumers in urgent need of funds use this service.

Loans are possible within a certain range (50-95%) of the surrender value while maintaining the insurance coverage, and the interest rate is around a maximum of 8%, which is much better than using card loans or private lenders.

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As the economy worsened and the number of users of insurance policy loans increased, financial authorities proposed to insurance companies to lower the interest rates on policy loans, starting the discussion.

The current plan under discussion is to offer ultra-low interest products in the 1% range by applying only the additional interest rate. The current policy loan interest rate is determined by adding an additional interest rate of 1-2% to the expected interest rate or the announced interest rate. If only the additional interest rate excluding the expected or announced interest rate is applied, the loan interest rate will be significantly reduced.

The amount accumulated from the expected interest rate and the announced interest rate is later deducted from the insurance payout that the borrower receives upon product maturity or cancellation, so from the insurance company's perspective, it is not a product that causes significant losses.

However, insurance companies are not actively pursuing this product because developing it requires considerable time and cost. There are also comments that launching the product in the near future is difficult. Since the benefits consumers receive over the entire maturity period do not differ, there is a burden from criticism that it is a case of "a difference without a difference" (Josam-mosa).

An official from the insurance industry said, "To calculate the interest rate using only the additional interest rate, a system must be introduced that separates the expected/announced interest rates and additional interest rates for all products subscribed to by existing policyholders, which requires a lot of time and cost," adding, "It will not be easy for insurance companies to put that much effort into something that does not bring immediate profit with limited resources."

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