As the interest rate for deposits falls below 3%, short-term premium life insurance is drawing attention again. Short-term premium life insurance is a product that allows policyholders to pay premiums for 5 or 7 years and receive up to 124% of the premiums paid if they terminate the contract in the 10th year. Despite the declining market interest rates, the refund rate for short-term premium life insurance remains stable, sustaining demand primarily for the 5-year payment period due to its shorter premium payment duration.
According to the Bank Federation on the 21st, the highest interest rate for 12-month maturity deposits at the four major banks (KB Kookmin, Shinhan, Hana, Woori Bank) is 3% per annum. The full 3% interest rate can be received only if all preferential interest rate conditions are met. SC First Bank recently lowered its interest rates for deposit products by up to 0.5 percentage points, while Hana Bank reduced its rates by 0.2 percentage points. This is interpreted as a consequence of the Bank of Korea's interest rate reduction policy leading to falling market interest rates.
Despite the interest rate reduction policy, the refund rate for short-term premium life insurance has not shown significant fluctuations. Life insurance companies have lowered the refund rate for 7-year products from the existing level in the 120% range to around 119%, but the 5-year payment plan maintains a rate of 122-124%. Tongyang Life Insurance offers the highest at 124.9%, followed by NH Nonghyup Life at 123.2%, and KB Life and Hana Life at 122.5%.
Short-term premium life insurance is a product in which premiums are paid monthly and then left for a certain period, combining the characteristics of deposits. This makes it difficult to compare directly with the interest rates of commercial banks' deposits. However, calculated using internal rate of return (IRR), the 5-year payment plan yields approximately 3.11% (on a simple interest basis), while the 7-year plan yields about 3.49%. It is advantageous in terms of yield compared to deposits, and tax benefits can also be enjoyed.
A drawback of short-term premium life insurance is that if the contract is terminated before completing the payment period (5 or 7 years), the principal cannot be refunded. Nevertheless, with projections indicating the possibility of further reductions in benchmark interest rates, demand continues to focus on the shorter 5-year payment period. An insurance industry official noted, "Since it is not a situation where one suffers a loss just by completing the premium payment period, there are still many customers who consider it as saving and are looking to subscribe."
Short-term premium life insurance is playing a significant role for life insurance companies. According to the Life Insurance Association, the initial insurance premiums for death benefit insurance products from January to November last year amounted to 832.7 billion won, an increase of over 100 billion won compared to the previous year's total of 726.6 billion won. Initial insurance premiums refer to the amount a customer pays the first time after entering into an insurance contract. While not all death benefit products are short-term premium life insurance, they constitute the majority.
Life insurance is often overlooked because premiums are paid for decades before beneficiaries can receive the payout after death. Therefore, life insurance companies have launched short-term premium life insurance products with significantly reduced payment periods and an emphasis on savings. At one point, the refund rate even exceeded 130%, leading to heated competition. However, financial authorities intervened, and the rate has since settled at between 110% and 120%.