Shinhan Life Insurance has introduced a pension insurance product guaranteeing a minimum annual interest rate of 7%, challenging the pension insurance market. The fervor of short-term premium whole life insurance appears to be shifting toward pension insurance.
According to the insurance industry on the 2nd, Shinhan Life launched the pension insurance "Shinhan ONE The Life" last month, which guarantees an annual interest rate of 7% for 1 to 20 years after signing up and then 5% thereafter.
This product allows a 40-year-old male to pay 500,000 won monthly for 10 years, and upon starting the pension at age 65, receive 7.27 million won annually (600,000 won monthly) until age 100. If the same conditions are applied with a payment of 1 million won, the annual amount received would be 14.54 million won (1.22 million won monthly). It takes approximately 9 years of receiving the pension to recover the principal (paid premiums), after which revenue begins to be generated.
In the first half of this year alone, the pension insurance market was a three-way race among KDB Life, iM Life, and IBK Pension Insurance. The three companies sold variable pension insurance with a minimum guaranteed annual interest rate of 7% to 8%. Variable pension insurance invests the premiums paid into funds, with the returns from these investments becoming the final pension amount. However, since insurance companies guarantee the revenue rate, it was effectively sold as fixed-rate pension insurance.
The product introduced by Shinhan Life is a general pension insurance. Although it is distinctly different from variable pension insurance, it can be seen as similar to existing minimum guaranteed variable pension insurance products due to its guaranteed annual interest rate of 7%. Shinhan Life explained that they launched this product in the form of pension insurance due to restrictions that only qualified agents can sell variable pension insurance. A Shinhan Life representative noted, "We developed a new pension insurance in line with the aging trend," adding, "It aims to enhance sales activation and diversify the product portfolio."
As a trend of interest rate cuts is expected to continue, many fixed-rate pension insurances have been launched since the second half of last year. KDB Life introduced a pension savings insurance last October that guarantees a fixed annual compound interest rate of 3.5% for 5 years after the contract is signed, while Hana Life launched a variable pension insurance in September of last year that guarantees an annual interest rate of 4% to 7% depending on the insurance period. MetLife began selling a dollar pension insurance in October of last year that guarantees the announced interest rate at the time of signing up for 20 years. If the announced interest rate at enrollment is 5%, it effectively provides a fixed interest rate of 5% for 20 years.
A high interest rate does not necessarily indicate a favorable pension insurance product. Pension insurance creates a baseline amount by adding interest to the premiums paid by customers, and the amount received annually is determined by multiplying the baseline amount by the payout rate. Ultimately, the pension amount depends on the payout rate. While a pension insurance product with a 7% interest rate may have a larger baseline amount, if the payout rate is set low, the actual pension amount received may be reduced. Thus, a 7% pension insurance could yield a lower actual pension amount than a 6% product.
The insurance industry anticipates that the fervor for short-term premium whole life insurance may shift toward pension insurance. Life insurance companies are reducing sales volumes by lowering refund rates as financial authorities require conservative assumptions regarding the cancellation rates of short-term premium whole life insurance. Kim Cheol-ju, president of the Life Insurance Association, stated in a New Year’s speech, "We will strengthen the role of life insurance in the pension market."