Investors Seek Alternatives as Stock Market Declines

Investors are facing uncertainty as the stock market experiences a downturn after a prolonged period of soaring prices. Many are hesitant to return to banks, despite recent increases in interest rates for savings accounts and time deposits. However, many of these products come with stringent conditions to qualify for high preferential rates. Amid this backdrop, savings insurance and pension insurance from insurance companies have gained attention, particularly for investors looking to manage surplus funds over the long term.

Savings insurance involves paying premiums and receiving a lump sum at maturity, which includes accumulated savings and interest. While similar to bank savings accounts, it includes some coverage features and focuses on long-term maintenance. It is important to note that, unlike bank savings, not all premiums earn interest, as insurance companies deduct business costs and risk premiums before allocating funds.

For instance, if a monthly premium of 100,000 won has 6,000 won deducted for business costs, the actual amount saved would be 94,000 won. Consequently, in the early stages of the policy, the surrender value may be less than the total premiums paid, and it may take several years to recover the principal, making it advisable to invest surplus funds that can be set aside for at least 10 years.

The most common type of savings insurance is interest-linked savings insurance. This product allows the accumulated savings to grow based on a publicly announced interest rate that reflects market interest rates and asset management returns. As market interest rates rise, the announced interest rate may also increase, making it worth considering during periods of rising rates. Currently, Hyundai Marine & Fire Insurance has announced an interest rate for October 2026 ranging from 2.74% to 3.52%, depending on the product type.

On the other hand, those looking to hedge against falling interest rates may consider fixed-rate products. These guarantee a predetermined interest rate for the duration of the contract, ensuring that even if market rates decline, the agreed-upon rate remains in effect. However, it is crucial to verify whether the fixed rate will be maintained until maturity or if it will switch to the announced rate after a certain period.

For those planning for retirement, pension insurance is another viable option. This product allows for long-term premium payments or a lump-sum deposit, which can then be distributed as pension payments starting at a certain age. There are both savings pension insurance, which operates based on announced interest rates, and variable pension insurance, which invests in stocks and bonds. The variable type can result in varying payout amounts based on investment performance and carries the risk of principal loss.

There are also different methods for receiving pension payments. The lifetime option allows for payments as long as the individual is alive, making it suitable for those concerned about longevity risk. The fixed-term option provides payments over a specified period, such as 10 or 20 years, which can be beneficial for securing initial retirement living expenses.

Another advantage of savings insurance and pension insurance is the tax benefits they offer compared to stocks and savings accounts. If certain conditions are met, individuals can be exempt from the 15.4% income tax on insurance gains. For lump-sum payments, the total premium must be under 100 million won and maintained for over 10 years, while monthly savings must total under 1.5 million won per month for over five years and maintained for at least 10 years.

It is important to note that the tax benefits differ from those of pension savings insurance. While pension insurance can provide tax-free gains if certain conditions are met, pension savings insurance allows for a tax deduction of up to 6 million won on contributions annually. However, pension income tax ranging from 3.3% to 5.5% applies upon receipt, and early termination may incur a 16.5% tax on the contributions and investment gains that received tax deductions.

Ultimately, if individuals plan to use a lump sum for immediate needs such as marriage or purchasing a home, bank savings accounts may be more suitable. Conversely, for those with surplus funds that will not be used for an extended period or who wish to secure regular living expenses after retirement, comparing savings insurance and pension insurance is advisable. Industry experts recommend that before enrolling in savings or pension insurance, individuals should check not only the announced interest rates but also the business costs, expected surrender values, and minimum guaranteed rates, as well as when they can expect to recover their principal.