As interest in the stock market has grown recently, so-called active funds—variable life insurance domestic equity funds that invest in stocks identified by fund managers—have underperformed index funds that track market benchmarks. Active fund fees can be up to 10 times more expensive than index funds.

According to the Korea Life Insurance Association on the 16th, as of the 13th, among 195 domestic investment/equity funds available within variable life insurance policies sold by 22 life insurers, the simple average one-year return of 51 funds with "index" in their names was 134.53%. In contrast, the average return of the remaining 144 funds was 107.26%, lower than the overall fund average of 114.43%.

An electronic board shows market data at the dealing room of Hana Bank's head office in Jung-gu, Seoul, on the 6th./Courtesy of Yonhap News

Index funds that simply track a benchmark trade according to set rules, making the expense low. In contrast, active funds incur higher expense because fund managers select stocks and adjust portfolio weights based on market conditions.

For index funds with more than 100 billion won in fund net worth, expenses (other expenses and fund-of-funds expenses) are around 0.1%. MetLife's Index Equity (491.6 billion won), which recorded the highest return (145.9%), was 0.04%, while Samsung Life Insurance's K Index Equity (2.2451 trillion won), which has the largest net assets, was 0.1%.

From left, the headquarters buildings of Samsung Life Insurance, Hanwha Life Insurance, and Kyobo Life Insurance./Courtesy of each company

By the same measure, Mirae Asset Life Insurance's Dividend Equity (312.6 billion won) had a one-year return of 88.98%, underperforming, while its expense was 0.41%, 10 times higher than the MetLife fund. Tongyang Life Insurance's Growth Value Equity Mixed (137.4 billion won) also posted a return of 81.39%, but the expense was 0.21%.

Variable life insurance is a product that invests premiums paid by policyholders into funds. The higher the investment return, the larger the future insurance payout or annuity. Insurers outsource fund management within variable life insurance to asset managers. Policyholders must pay both policy-related charges, such as acquisition and maintenance fees, and fund management fees. If certain conditions are met, such as maintaining the contract for more than 10 years, tax-free benefits are available.

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