The death benefit liquidity system, which allows the conversion of death benefits that are paid only upon death into pension assets to respond to income gaps during one's lifetime, will begin this October.
On the 19th, the Financial Services Commission held a review meeting with the Financial Supervisory Service, the Life Insurance Association, and others, and announced that five life insurance companies, including Samsung, Kyobo, Hanwha Life, Shinhan, and KB Life, will launch the death benefit liquidity for the first time in October. Other insurance companies also plan to sequentially launch liquidity products.
Death benefit liquidity is a system that converts death benefits into pension assets that can be utilized during one's lifetime. It enables liquidity by uniformly applying a liquidity clause to whole life insurance contracts that were subscribed to in the past without a pension conversion clause. If a person subscribes to a product with a liquidity clause and satisfies application requirements such as completing premium payments and reaching the eligible age, liquidity becomes possible.
By liquidating the death benefit, one can receive an amount that exceeds the monthly premiums paid thus far, tax-free. This is because the total amount of the liquidity payment is set to exceed 100% of the paid premiums. Consumers can directly choose the liquidity ratio, which is up to 90% of the death benefit.
Eligible contracts must meet four conditions: the death benefit collateral must be 900 million won or less for interest-fixed whole life insurance; the contract period must be more than 10 years and the premium payment period must also exceed 10 years while premium payments must be completed; the policyholder and the insured must be the same person; and there must be no outstanding balance on the insurance contract loan at the time of application.
In particular, financial authorities have expanded the applicable age for death benefit liquidity from 65 to 55. The aim is to allow individuals to secure death benefits as retirement living funds starting from the mid-50s when income gaps begin. As of the end of last year, the number of eligible contracts for death benefit liquidity reached 759,000 (34.8 trillion won). The number of contracts increased 2.2 times and the subscription amount increased threefold compared to when the age was set at 65.
A 'lump-sum payment type' that pays the amount equivalent to 12 months of pension at once will be newly established. Consumers can choose between the lump-sum payment type and the monthly payment type. The financial authorities plan to prioritize the launch of the lump-sum payment type in October and sequentially release the monthly payment type after the completion of computer development early next year. Those who have performed the liquidity using the lump-sum payment type in October can also switch to the monthly payment type later.
A plan to individually notify eligible policyholders of their eligibility for death benefit liquidity is also in progress. The five insurance companies launching liquidity for the first time will notify policyholders via text message or KakaoTalk that they are eligible in October, and all insurance companies that release products afterwards will regularly select and notify new eligible policyholders.
Insurance companies will accept related civil complaints at face-to-face sales offices to prevent incomplete sales. After the stabilization of the system, non-face-to-face reporting will be expanded. In addition, to ensure sufficient system guidance and enhance policyholder understanding, dedicated personnel for death benefit liquidity will be operated, and the right to withdraw and cancel death benefit liquidity will be guaranteed.