The Financial Supervisory Service issued a consumer alert with a 'caution' rating regarding dollar insurance, which has been gaining popularity due to the rising exchange rate. Dollar insurance is a product where premiums are paid in dollars and payouts are received in dollars. However, there is a possibility that the refund amount upon cancellation may be less than the principal due to the exchange rate difference between the premium payment time and the payout time.
On the 25th, the FSS noted, "Recently, as the trend of rising exchange rates and the expansion of external economic uncertainties, along with high-interest rates, have resulted in a significant increase in both the number and value of dollar insurance sales, there are concerns that damages resulting from incomplete sales will also increase."
Last month, the number of dollar insurance sales reached 7,758, a seven-fold increase compared to January of last year (1,060). During the same period, the sales amount also rose by 100 billion won to 145.3 billion won.
The FSS emphasized that dollar insurance is not a foreign exchange technology product that predicts exchange rate volatility and generates revenue. Aside from the fact that premiums are paid and payouts are received in dollars, dollar insurance is essentially the same as any other insurance product.
In particular, unlike general savings or investment products, the entire premium paid in dollar insurance is not invested. Only the amount remaining after deducting the portion of the premium used to cover risks such as death, as well as the expenses incurred during recruitment, is accumulated.
The FSS warned that premiums payable may increase or payouts may decrease depending on exchange rate fluctuations. For example, if the exchange rate was 1,500 won per dollar when paying the premium, and then drops to 1,200 won per dollar by the time the payout is received, it is possible to incur a loss on the principal.
In addition, for interest-linked dollar insurance products, because the public rate (accumulation rate) is determined by foreign bond interest rates, if overseas market interest rates decrease, the refund amount upon cancellation may be less than expected.
The FSS guided that "insurance contract holders can withdraw their application and receive a refund of their paid premiums within 15 days from the day they receive the insurance certificate and within 30 days from the day of application, even without special reasons."