Sales of whole life insurance drop as people live longer

Older adults attend the 2024 literacy education graduation ceremony at the Seoul Education Training Institute in Seocho District, Seoul, Feb. 12. Yonhap

Lee, a 39-year-old man who works at a consulting firm in Seoul’s Guro District, canceled his whole life insurance policy two years ago after maintaining it for about a decade.

Although the amount Lee received was less than his principal, he found it difficult to continue paying more than 100,000 won ($69) in monthly premiums for death benefits, which felt like a distant concern.

“With medical indemnity insurance, I receive payouts every time I visit a hospital, so I don't feel like my premiums are wasted. But whole life insurance felt like an asset I couldn’t use and had forgotten about,” Lee said. “Even if canceling meant losing part of my principal, I figured it was better to stop paying premiums for decades to come and use that money for my current living expenses instead.”

Whole life insurance, a type of life insurance, provides lifelong coverage and pays death benefits to designated beneficiaries upon the policyholder’s passing. It also accumulates cash value over time. This differs from term life insurance, which offers coverage for a fixed period without a cash value component.

Since its introduction in the 1960s, whole life insurance was once considered a must-have for the head of a household and served as a major revenue driver for life insurance companies.

However, as life expectancy rises alongside an aging population, such a product is losing its appeal due to its structure, which prevents policyholders from accessing their paid premiums, even if they face financial difficulties after retirement.

 

According to the Financial Supervisory Service’s (FSS) Financial Statistics Information System, the number of new whole life insurance contracts dropped from 1.65 million in 2020 to 1.06 million last year.

Over the same period, the total contract amount also fell by approximately 45 percent from 88.6 trillion won to 49.1 trillion won.

Against this backdrop, financial authorities have now introduced plans to allow policyholders to utilize death benefits while still alive, aiming to enhance the utility of whole life insurance.

As early as the third quarter of this year, policyholders will be able to receive their whole life insurance death benefits in the form of monthly annuity payments while they are still alive, or use them for services such as health care.

The measures were finalized during the insurance reform meeting on Tuesday, held by the Financial Services Commission (FSC) and the FSS, attended by over 130 participants, including insurance company CEOs and academics.

The FSC said as population aging accelerates and life expectancy increases, the importance of retirement income is growing. However, Korea’s older adult poverty rate stands at 39.2 percent, one of the highest among OECD countries, and retirement preparedness through pensions and other means remains insufficient compared to major advanced economies.

To address this, the government plans to provide a stable source of income after retirement by allowing policyholders to access their death benefits.

Under the government’s guidelines, policyholders will be able to choose between an annuity-type or service-type option while keeping their death benefits intact.

The annuity-type option enables policyholders to receive their death benefits in monthly payments, similar to a pension. The service-type option allows them to use their benefits for services such as caregiving and health care.

Financial Services Commission Vice Chairman Kim So-young speaks during the insurance reform meeting at Government Complex Seoul, Tuesday. Yonhap

Considering the nature of whole life insurance, policyholders will be able to utilize up to 90 percent of their death benefits rather than the full amount. Instead of a one-time payment, the benefits will be distributed in regular installments, such as over a 20-year period.

Life insurance policies eligible for these measures must have a contract term of at least 10 years and a premium payment period of at least five years, with the policyholder and the insured being the same person. Additionally, the policy must not have any outstanding policy loans.

There are no specific income or asset requirements, and any policyholder aged 65 or older at the time of application can apply.

However, interest rate-linked whole life insurance policies and those with ultra-high death benefits exceeding 900 million won are excluded from the program.

As of December 2024, approximately 339,000 policies are expected to be eligible for the program, with an estimated total value of 11.9 trillion won.

The relevant products are set to roll out gradually starting as early as the third quarter, beginning with insurers that have finalized their preparations.

Financial authorities intend to form a task force with industry representatives to refine detailed operational guidelines, including measures for consumer protection.

“The program can provide consumers with a stable source of retirement income while enhancing insurers’ roles through expanded services,” FSC Vice Chairman Kim So-young said. “As this involves a new product structure, implementing thorough consumer protection measures is essential to prevent potential risks.”