Insurance YouTubers and Bloggers Must Present Legal Basis for Tax-Free Claims - Warning from the Life Insurance Association

The association has noted a rise in misleading information about tax-free insurance products

Recently, the Life Insurance Association (LIA) issued a strong warning to insurance YouTubers and bloggers about exaggerated tax-free claims in their advertisements. The association has noted a rise in misleading information about tax-free insurance products, prompting a demand for clear legal grounds. This article will cover the LIA's warning and provide accurate information on tax-free insurance products.

Tax-free benefits of insurance products are a significant selling point. However, increasing instances of such benefits being exaggerated or lacking legal backing in advertisements have become a concern. In response, the LIA recently issued guidelines to life insurance companies and general agencies (GAs) about the advertising of tax-free savings insurance products, including short-term whole life insurance, minimum guaranteed variable annuities, savings insurance, and annuity insurance.

The LIA instructed life insurance companies and GAs to include a disclaimer in advertisements for tax-free savings insurance products, indicating that the tax-free benefit applies "only when relevant tax law requirements (Income Tax Act Article 16, Income Tax Act Enforcement Decree Article 25, Income Tax Act Enforcement Rule Article 12) are met." This measure aims to ensure that YouTubers and bloggers include necessary legal disclaimers when promoting tax-free benefits.

A notable aspect of the LIA's recent guidelines is the classification of short-term whole life insurance alongside minimum guaranteed variable annuities, savings insurance, and annuity insurance as savings insurance. The LIA clarified that this classification was made to ensure that advertisements specify the legal basis for tax-free claims, independent of interpretations from the Ministry of Strategy and Finance or the National Tax Service.

Recently, the Ministry of Strategy and Finance's Financial Tax Policy Division interpreted that if short-term whole life insurance solely provides death benefits and is not intended for savings purposes, it can be tax-exempt without limit. However, if the insurance product's surrender value, premium payment scale, and rider types suggest it is a savings insurance, it must meet the criteria for tax-free savings insurance under the Income Tax Act.

The tax-free criteria for savings insurance under the Income Tax Act are as follows:

1. The period from the first premium payment to maturity or early surrender must be at least 10 years.

2. Monthly installment insurance contracts must have a premium payment period of at least 5 years from the initial payment.

3. Monthly premiums must be uniform (including cases where the basic premium is increased within one times the initial premium).

4. The total monthly premium per policyholder must not exceed 1.5 million KRW.

5. The prepaid premium period must not exceed 6 months.

Providing accurate information and clearly stating the legal basis for tax-free claims is the responsibility of insurance YouTubers and bloggers. The LIA's recent warning aims to protect consumer trust and promote healthy growth in the insurance market. When creating insurance advertisements, it is crucial to provide clear legal disclaimers and avoid exaggerated claims. This will help consumers make informed decisions and support the integrity of financial product promotions.