Domestic equity funds returned 197.5% over the past year
Domestic bond funds, by contrast, lost 4.4%
Same principal can diverge by more than 20 million won
Check your policy's fund-switching option
Returns on variable life insurance policies diverged by more than 200 percentage points over the past year depending on which fund a policyholder chose. Domestic equity funds nearly tripled accumulated savings, while domestic bond funds actually posted a loss.
According to the Korea Life Insurance Association, the net-asset-weighted average return on domestic equity funds within variable life insurance products reached 197.50% over the past year as of the second quarter of this year. Domestic bond funds, by contrast, recorded a return of -4.41% over the same period — a gap of roughly 202 percentage points.
Variable life insurance is a product in which the insurer invests a portion of the premiums paid by the policyholder into funds. The insurance payout or surrender value the policyholder eventually receives can rise or fall depending on how those funds perform.
When signing up, policyholders can choose which funds to put their money into from a lineup prepared by the insurer. Options include equity funds, which invest primarily in stocks; bond funds, which invest primarily in bonds; and balanced funds, which combine both. As of the end of the second quarter, life insurers were running 1,798 variable insurance funds in total.
The performance gap by fund type over the past year is stark. One-year returns were: domestic equity funds at 197.50%, domestic equity-balanced funds at 72.64%, overseas equity funds at 39.04%, domestic bond-balanced funds at 34.25%, overseas bond funds at 7.20%, domestic bond funds at -4.41%, and domestic-overseas bond funds at -6.01%.
A simple calculation shows that 10 million won ($7,350) placed in a domestic equity fund a year ago would have grown to about 29.75 million won. The same amount in a domestic bond fund would have shrunk to about 9.56 million won — a difference of roughly 20.19 million won depending on fund selection.
However, this is a straightforward calculation based on fund returns alone and does not account for fees and other costs. Actual returns for policyholders will vary depending on when premiums were paid, administrative expenses, and the proportion of premiums allocated to each fund.
The gap remains wide over a longer horizon. The three-year return on domestic equity funds reached 271.23%, while domestic bond funds managed just 7.05%.
A significant amount of money remains parked in bond funds despite their weak performance. As of the end of June, the combined net assets of domestic, overseas, and domestic-overseas bond funds stood at about 27.84 trillion won ($20.5 billion) — equivalent to 18.6% of total variable insurance fund net assets of 149.36 trillion won.
Some funds saw both returns and net assets decline simultaneously. The one-year return on overseas commodity funds — which invest in raw materials — fell from 40.91% in the first quarter to 27.19% in the second quarter. Net assets in those funds dropped 29.7% over the same period, from 260.4 billion won to 183.1 billion won.
Most variable life insurance policies include a fund-switching feature that allows policyholders to change their investment allocation after signing up. Policyholders can move existing accumulated savings into a different fund or adjust the proportion of future premiums directed to each fund. Requests can be made through the insurer's website, mobile app, or customer service center, though the number of permitted switches and whether fees apply vary by product, so policyholders should check their policy terms.
Fund-by-fund returns can be checked under the variable insurance section of the Korea Life Insurance Association's product comparison disclosure portal.
However, policyholders should exercise caution before moving all their bond fund holdings into equity funds based solely on recent returns. A wealth management specialist at one life insurer said the strong performance of equity funds over the past year reflected a broad rally in the stock market, adding that losses in equity funds can also be steep when share prices fall. The specialist also noted that bond funds offer relatively lower expected returns but serve a defensive role by limiting losses during market downturns, and advised policyholders to adjust their fund allocation with their investment horizon and risk tolerance in mind.
won@heraldcorp.com
