NH Nonghyup Life Insurance has confirmed that it will reduce the size of related loans, including the limit on policy loans, starting next year. A policy loan is a type of collateral loan that policyholders can borrow against the surrender value of their policy, up to a maximum of 90-95%. It is strongly recognized as a 'last financial resort' for policyholders who need immediate cash. It seems that insurance companies are taking steps to raise lending thresholds in reflection of the financial authorities' concerns about the rise in household loans in the secondary financial sector.
According to the financial industry on the 19th, NH Nonghyup Life Insurance recently informed customers that it has decided to reduce the limits on whole life annuity policy loans starting March 1 of next year. The collateral recognition rate for whole life annuity policy loans will be reduced from 95% to 50%. However, the current collateral recognition rate of 95% will be maintained for non-whole life policies, such as fixed or inheritance policies.
Furthermore, starting January 1 of next year, it has been decided that special contract items will also be excluded when calculating the amount available for policy loans, although savings-type special contracts will be included. Accordingly, it was also noted that the amount available for loans may be reduced by product type starting next year. In cases where the allowable loan amount exceeds due to reduced collateral for existing loan customers, they will be allowed to continue using the amount without any disadvantages until the existing repayment deadline.
This is interpreted as the insurance industry responding to the 'balloon effect' that has occurred as commercial banks tighten loan standards, leading borrowers to flock to the secondary financial sector. According to the financial authorities' monitoring of household loans, last month, household loans in the banking sector increased by 1.9 trillion won compared to the previous month, while the secondary financial sector saw an increase of 3.2 trillion won. In particular, among the various sectors of the secondary financial sector, the increase was largest in mutual financial institutions (1.6 trillion won) followed by insurance (600 billion won).
The prevailing trend of increased regulatory pressure from the authorities on loans in the secondary financial sector is also reflected. The financial authorities have called for stronger management due to concerns that household debt could surge again in the secondary financial sector. They are not only monitoring the situation of household loans but have also required mutual financial institutions to submit household loan management plans for next year.
A representative from NH Nonghyup Life Insurance noted, 'This reflects the industry atmosphere that is restricting household loans other than for actual demand and the opinions of the authorities.' They explained, 'In the case of policy loans, the limits are adjusted according to the situation, but since whole life products are long-term, there is a greater possibility of changes in the refund amount due to the product structure, which is why they became the target of this limit reduction.'