Following the U.S. presidential election, emergency martial law and impeachment political climate continue domestically, causing fluctuations in the exchange rate. Experts anticipate that high exchange rates will persist until the first half of next year, and among asset holders, dollar insurance, which receives payouts in dollars, is becoming the norm.
According to the financial sector on the 11th, the four major commercial banks (KB Kookmin, Shinhan, Hana, and Woori) reported that the sales of dollar insurance until last month amounted to 948.8 billion won. This marks a 60% increase from the annual sales figure (569.3 billion won) until December of last year. When factoring in this month's sales, the growth rate of dollar insurance sales is expected to rise further.
Dollar insurance is a pension insurance product where premiums are paid in dollars and payouts at maturity are also received in dollars. Similar to standard insurance, various types such as whole life insurance, pension insurance, and savings insurance can be subscribed to. Most foreign currency insurance products sold domestically are designed in dollars, leading to the term dollar insurance.
Dollar insurance products guarantee high redemption rates if maintained for 10 years, and if high exchange rates are sustained, there is the added advantage of potential exchange gains. Additionally, for products managed as bonds, the redemption rates could increase even if they are prematurely terminated during periods of interest rate cuts. Furthermore, there are tax benefits as exchange gains at the time of payout are not taxed.
The rising popularity of dollar insurance is attributed to the recent rapid increase in the won-dollar exchange rate. The strong dollar phenomenon began following the election of former President Donald Trump in the U.S. Last month, as the won-dollar exchange rate surpassed 1,400 won, a psychological barrier was breached. After President Yoon Suk Yeol declared a state of emergency on the 3rd, the won-dollar exchange rate closed at 1,437 won on the 9th. This is the highest level in two years and one month since October 24, 2022, when it was 1,439.7 won.
Asset holders expect that the unstable political climate will continue, preparing for the possibility that high exchange rates will persist for a while. More individuals are looking to protect against the decline in the value of the won. A representative from a private banking center at a major commercial bank noted, "Recent dollar insurance can be described as a complete trend, as many people are seeking it," adding, "There are days when we only conduct consultations for dollar insurance all day."
However, individuals must be aware that a drop in the exchange rate could lead to losses. If one converts won to dollars at an elevated exchange rate exceeding 1,400 won, there is a significant risk of incurring exchange loss due to fluctuations in the exchange rate. In such a case, there could be substantial losses at maturity or early termination if the exchange rate falls significantly. Additionally, the uncertainty brought about by various policy changes and international geopolitical situations following Trump's administration increases the likelihood of exchange rate volatility.
A representative from the insurance industry stated, "Given that dollar insurance products often involve long-term policies of over 30 years, it is an inappropriate product to subscribe to purely for short-term exchange gains," adding, "It is essential to clearly recognize these risks before signing up."