Financial authorities have determined that a life insurer's rider that "does not pay the accumulated amount when a subscriber dies (death withdrawal rider)" does not violate insurance supervision regulations. If financial authorities had concluded it was a violation, life insurers would have faced a crisis of having to return reserves (surrender refunds) worth hundreds of billions of won to customers.
The death withdrawal rider discounts premiums by 10% to 30% in exchange for not paying the surrender refund when the policyholder dies. After a complaint was filed in 2024 alleging that this product violated the Insurance Business Act supervision regulations, the Financial Supervisory Service conducted a fact-finding inspection.
According to the financial sector on the 30th, financial authorities recently notified the life insurance industry that the death withdrawal rider does not violate insurance supervision regulations. Instead, they recommended preparing consumer protection measures, such as strengthening guidance for insurance products that include the death withdrawal rider.
If a subscriber who enrolled in the death withdrawal rider dies, the contract is automatically terminated without paying the accumulated amount. In exchange, premiums are about 10% to 30% lower. For example, if a person enrolled in health insurance with a cancer diagnosis rider, and the subscriber dies before a cancer diagnosis, the insurer does not refund the rider premiums paid and terminates the contract.
After a complaint was filed alleging that the death withdrawal rider violated insurance supervision regulations, the Financial Supervisory Service (FSS) launched a fact-finding inspection targeting the non-life sector. Current insurance supervision regulations specify that "if death occurs due to a cause not covered under the terms and conditions, the contract should be designed to pay the policyholder's accumulated amount and unearned premiums, and the contract should terminate." The policyholder's accumulated amount is a type of surrender refund, and the intent is to treat the policyholder's death as a kind of midterm cancellation and return at least part of the premiums paid.
Roughly two years after the complaint was filed, financial authorities concluded that the rider in question does not violate the regulations. At the time, the life insurance industry conveyed its position that it had sold the rider for more than 10 years while receiving notifications and approvals from financial authorities, and it is reported that the authorities accepted this.
The life insurance industry is said to have sold this rider for more than 10 years, worth hundreds of billions of won. If financial authorities had concluded that the rider violated supervision regulations and decided to have part of the reserves paid to customers, life insurers would have had to spend hundreds of billions of won. The life insurance industry plans to push consumer protection measures, such as revising product disclosure rules and strengthening comparative guidance.