Funds withdrawn from life insurance exceeded 36 trillion won in the first half of this year. Analysts attribute the increase in policy cancellations to a combination of strong demand for investment opportunities amid a bullish stock market and the need for living expenses due to high inflation and economic slowdown.
According to the insurance industry on September 1, the surrender benefits from 22 life insurance companies reached 36.4692 trillion won, a 45.4% increase from 25.0748 trillion won in the same period last year. The amount withdrawn after canceling insurance policies rose by more than 11 trillion won within a year. Surrender benefits refer to the money returned to policyholders when they cancel their insurance before maturity.
The number of cancellations also increased. Including policies that have lapsed, the total number of cancellations rose from 3,433,271 in the first half of last year to 3,627,290 in the same period this year, marking a 5.7% increase. The average payout per cancellation surged by 38%, from approximately 7.3 million won to 10.05 million won.
Industry experts believe the strong domestic stock market has influenced the rise in cancellations. There has been a noticeable trend of policyholders withdrawing funds that had been tied up in insurance for a long time to invest in higher-yielding opportunities such as stocks. However, it is difficult to quantify the exact amount that has shifted to the stock market as the actual usage of the surrendered funds is not tracked.
Additionally, the demand for cancellations has increased as households seek to secure living expenses amid high inflation and economic downturn. Families facing rising insurance premium burdens are opting to cash out their policies for immediate financial needs rather than maintaining their contracts.
New contracts to replace the canceled policies have also declined. In the first half of this year, the number of new individual insurance contracts was 572,496, a 7.1% decrease from the same period last year. The total amount of new contracts fell by 4.8% to 89.5706 trillion won. This indicates a simultaneous trend of existing policyholders leaving and a decrease in new enrollments.
The financial performance of life insurance companies has worsened. The insurance profit for the 22 companies in the first half of the year was 1.9297 trillion won, down 26.2% from 2.6147 trillion won during the same period last year. With low birth rates and an aging population weakening the base for new enrollments, the increased burden of insurance premiums due to economic slowdown has made it challenging for traditional insurance operations to sustain growth.
An industry official stated, “As demand for living expenses has risen due to the economic recession, surrender benefits have increased, and this year, the KOSPI has surged. It appears that there is also growing demand to liquidate savings-type insurance policies and move funds into the stock market.”
* This article has been translated by AI.
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