Falling Appeal of Savings Insurance: The Rise of Short-Term Life Insurance

The attractiveness of savings insurance is sharply declining, with short-term life insurance gaining popularity

The attractiveness of savings insurance is sharply declining, with short-term life insurance gaining popularity. The lower interest rates of savings insurance and the higher return rates of short-term life insurance are driving this shift. Insurance industry data indicates that the sales of savings insurance have nearly halved over the past year. This post will analyze the differences between savings insurance and short-term life insurance and the recent changes in their popularity.

Declining Appeal of Savings Insurance and the Rise of Short-Term Life Insurance

Recently, the interest rates for savings insurance have dropped to around 2%, significantly reducing its appeal for savings purposes. Savings insurance now offers lower returns compared to traditional bank savings and fixed deposits. Meanwhile, short-term life insurance is gaining traction due to its higher return rates.

Short-term life insurance products require policyholders to pay premiums for 5 or 7 years and offer a return of up to 24% of the premiums paid if the contract is terminated after 10 years. This product’s high return rates and similar premium payment and contract duration to savings insurance have led to a decreased attractiveness of traditional savings insurance.

Comparison of Return Rates: Savings Insurance vs. Short-Term Life Insurance

Currently, the highest return rate among savings insurance products is found in Kyobo Life’s “Kyobo e-Savings Insurance.” This product requires a monthly payment of 300,000 won for 5 years, with an additional 5-year grace period. After 10 years, the policyholder can receive 21.4 million won, yielding a return rate of 118.9%. In contrast, short-term life insurance products offered by insurers such as Fubon Hyundai Life and KDB Life have return rates exceeding 120%, with some reaching 124%. This is significantly higher than the return rates of savings insurance.

The Tax-Free Advantage of Savings Insurance and Its Reality

One advantage of savings insurance is its tax-free benefit. If the insurance contract is maintained for 10 years, interest income tax (15.4%) is exempt. However, most policies are taken out with relatively small amounts, making the tax-free benefit less impactful. Consequently, products offering higher interest rates are often seen as more efficient. The higher return rates of short-term life insurance compared to savings insurance have contributed to the latter’s declining appeal.

Decline in Savings Insurance Sales and Industry Response

According to the Financial Supervisory Service, the number of new contracts for savings insurance, excluding variable insurance, has significantly decreased. From 685,017 contracts at the end of 2020 to 360,320 contracts last year, the sales have nearly halved. Additionally, the premiums collected from savings insurance dropped from 43.382 trillion won at the end of 2022 to 21.436 trillion won last year. Industry experts note that the abundance of higher interest rate products has reduced customer interest in savings insurance. Short-term life insurance is now considered more attractive compared to savings insurance.

The appeal of savings insurance has waned as short-term life insurance becomes more popular. With lower interest rates and less effective tax benefits, savings insurance is seeing a significant drop in sales. Customers are increasingly drawn to short-term life insurance due to its higher return rates. When selecting insurance products, it is essential to consider current market trends and choose products that best fit individual needs.