[Death benefit liquidity program: one year on] ①

Full analysis of 3,056 valid contracts across five major life insurers

Average payout period 7.9 years at 350,000–390,000 won a month

Half of applicants chose monthly payments after option was introduced

Utilization rate stands at 0.65% of eligible contracts

[Getty Images Bank]
[Getty Images Bank]

In the first year since South Korea's death benefit advance program took effect, nearly half of all applicants were aged 55 to 64 — the cohort that has yet to begin receiving national pension payments. Applicants drew close to the program's 90 percent ceiling on advances and spread their payouts over an average of roughly eight years. Enrollment, however, spiked only around the launch and subsequent product announcements, and the overall utilization rate remained below 1 percent of eligible contracts.

A full analysis of 3,257 death benefit advance records from five major life insurers — Samsung Life Insurance, Hanwha Life Insurance, Kyobo Life, Shinhan Life and KB Life — obtained by People Power Party lawmaker Park Sung-hoon from the Financial Supervisory Service shows that 3,257 applications were filed at the five companies from Oct. 30 last year, when the program launched, through the end of September this year. After subtracting 188 withdrawals or cancellations and 13 rejections, 3,056 contracts remained valid.

By age group, applicants aged 55 to 64 accounted for the largest share at 1,603 cases, or 49.2 percent. Those aged 65 to 74 followed with 1,501 cases (46.1 percent), and applicants 75 and older made up 153 cases (4.7 percent). In the fourth quarter of last year, immediately after the launch, those 65 and older represented 54.7 percent of applicants — a majority driven by older policyholders who had long awaited the program. From this year onward, the 55-to-64 age group consistently topped 50 percent, accounting for 53.3 percent in the first quarter, 52.5 percent in the second and 50.1 percent in the third. Once the initial pent-up demand from older applicants subsided, people in their late 50s and early 60s emerged as the program's core users. Applicants 75 and older hovered between 3 and 5 percent each quarter.

Applicants drew advances as aggressively as the rules allowed. The average advance ratio was 89.5 percent, nearly at the 90 percent ceiling. The average payout period was 7.9 years. Although applicants could choose a minimum term of two years, most opted to concentrate their payments over a fixed period rather than stretch them out further.

Demand for monthly payouts also became apparent. At launch, only an annual lump-sum option — paying out one year's worth at a time — was available. After each insurer rolled out a monthly payment option between March and August this year, roughly half of new applicants chose it. Of the 189 applications filed in September, 96, or 50.8 percent, selected the monthly option. At Kyobo Life, 64.9 percent of applications since the option's introduction have been for monthly payments.

The first-year payout per contract runs 4.2 million to 4.7 million won ($3,500) annually, or roughly 350,000 to 390,000 won a month, because payouts are calculated based on the surrender value rather than the full death benefit amount.

Utilization remained low. As of the end of September, the five insurers had 467,206 contracts eligible for the program, with total death benefit coverage of 25.37 trillion won. Of those, only 0.65 percent had proceeded to an advance.

Applications surged primarily around new launches and product additions. Monthly filings peaked at 909 in November last year, the month after the program launched, before falling to 189 in February this year. They rebounded to 427 in April as insurers introduced monthly payment options, then dropped again to 56 in August. Measured as a monthly average by quarter, filings fell 76 percent — from 476 in the fourth quarter of last year to 116 in the third quarter of this year.

For many insurers, the introduction of monthly payments proved a turning point. Kyobo Life saw monthly applications rise from an average of 17 in the three months before the option launched to 76 in April, the first month it was available. KB Life went from 46 to 154 in May, and Shinhan Life recorded 141 applications in September, the month after its August launch. Annual-payment applications also rose in the same months, suggesting that the product expansion was compounded by a fresh round of customer outreach timed to each launch.

Meanwhile, the pool of eligible contracts grew steadily throughout the period. The five insurers added a net average of 3,104 eligible contracts per month over the year — 11 times the monthly average of 280 applications.

"The financial authorities and the insurance industry must take steps to substantially strengthen promotion and guidance procedures, and otherwise work to improve the program's low utilization rate, so that the death benefit advance system can serve as a genuine safety net that fills the income gap for older Koreans," Park said.


won@heraldcorp.com