As sales of limited-payment whole life insurance slump under financial authorities' regulations, a "700 whole life insurance" policy that refunds the full principal if canceled after seven years is emerging as an alternative. If maintained long term, the death benefit increases to as much as seven times the initial coverage amount, drawing reviews that it combines both refund competitiveness and protection. However, there are concerns that, because it touts a high refund rate, if cancellations rise after seven years, insurers' profitability could deteriorate.
According to the financial sector on the 16th, some insurers have been rolling out 700 whole life policies one after another since early this year. Tongyang Life Insurance launched "(Non-Participating) Woori WON 7-year安心 Whole Life Insurance" in May. The policy's death benefit increases 10% each year compared with the previous year, expanding to as much as 611% of the initial coverage amount after 20 years. After seven years from enrollment, it offers a 100% surrender refund rate, and policyholders can switch to a universal (UL) conversion-type whole life that allows partial withdrawals from the accumulated value or change the insured to a spouse or child.
KDB Life Insurance launched "The! Happy Seven Whole Life Insurance" in April, where the death benefit increases over time to as much as 700% of the coverage amount. If canceled after seven years, a refund rate of 100% or more is guaranteed. NH Nonghyup Life Insurance also launched a similarly structured product, "Step Up 700 NH Whole Life Insurance," in January this year.
Insurers are putting weight behind 700 whole life policies because they can secure a high contractual service margin (CSM). Given the nature of long-term payment products, premiums flow in for a long time and contract persistency is high, allowing insurers to expect stable cash flows and CSM.
However, some note that emphasizing a high refund rate could lead consumers to mistake it for a savings product that guarantees principal and revenue. There are also concerns that if cancellations around the seven-year mark exceed expectations, the gap between expected and actual profit and loss could widen. If an insurer assumes a lapse rate lower than reality, CSM, which represents future profit, can be overstated.
The financial authorities are also keeping an eye on this. The Financial Supervisory Service is said to have requested data last month from some insurers offering 700 whole life policies regarding lapse assumptions and the basis for calculating product profit and loss. There is speculation that this is to check the potential for product profitability to worsen if mass cancellations occur when the surrender refund rate rises sharply.
An insurance industry official said, "Because 700 whole life insurance sharply raises the refund rate after seven years of enrollment and significantly increases the death benefit the longer it is maintained, if cancellations exceed expectations or claim payments increase, it can affect the loss ratio and product profitability," adding, "Insurers that are conservative about revenue management are reluctant to launch it."