Illustration = Lee Eun-hyeon
Offshore insurance, which generates 6-7% annual profits, is steadily gaining popularity among the wealthy in Gangnam. Offshore insurance refers to insurance purchased by domestic customers through a direct contract with an insurance company operating overseas. Just like purchasing clothes directly from an overseas shopping mall, you are purchasing insurance directly from overseas.
Unlike Korean insurance, offshore insurance pays dividends and is evaluated as a suitable product for retirement security. It is safer than stocks and funds because the principal is guaranteed after a certain period of time, but the rate of return is higher than bonds, so it is considered a long-term investment product.
According to the insurance industry on the 13th, the number of wealthy individuals and professionals such as lawyers and doctors signing up for offshore insurance has been increasing in recent years. In particular, insurance in Hong Kong, which is considered an advanced financial country, is popular. Hong Kong insurance is insurance sold by global insurance companies such as AIA, AXA, and Prudential, which are incorporated in Hong Kong.
In order to sign up for offshore insurance, you must exchange documents directly with the overseas insurance company by mail. Some people visit local insurance companies and sign contracts with the help of experts while traveling abroad. The most popular Hong Kong insurance companies use English, so it is said that there is no difficulty in signing up as long as you have conversational skills.
The reason people look for offshore insurance is because of its profitability. According to savings insurance consulting from a global insurance company based in Hong Kong, if a 40-year-old male pays $90,000 (KRW 119.13 million) at $18,000 per year for five years, the accumulated amount will be accumulated at age 70 when the pension begins. It increases to $397,120 (525.58 million won). The principal is guaranteed starting 13 years after signing up for the insurance.
Compared to the pension savings insurance launched by a domestic life insurance company as a special offer last year, the size of the pension amount is more than double. Domestic products provide a fixed return of 6% per year for 10 years for a 40-year-old male, and 5% per year thereafter. If you pay 1.5 million won per month for 10 years (180 million won), you will receive 26.21 million won per year from the age of 70. On the other hand, the pension amount that can be received from the age of 70 for offshore insurance of the same standard is 56.6 million won per year.
French insurance company Axa logo. Not related to products mentioned in article. /Reuters Yonhap News
How do overseas insurance companies provide such profits? The answer lies in dividends. Most offshore insurance products are dividend-paying products. Insurance companies make profits by investing customers’ insurance premiums in stocks, funds, bonds, real estate, etc., and return the proceeds to customers. In Hong Kong, 90% of the profits are provided to subscribers, and the remaining 10% is taken by the insurance company. Since dividends are paid out every year, the accumulated savings increase over time by taking advantage of the compound interest effect.
On the other hand, all insurance products in Korea are non-dividend. Even if investment profits are made from insurance premiums paid by customers, there is no obligation to distribute dividends, so all interest is paid according to the published interest rate, and all of it goes to the insurance company’s profits. As of the 7th, among the interest rate-linked savings insurance products for 40-year-old men, there is no domestic product with a published interest rate exceeding 3%. Even if you just invest the insurance premiums you receive from customers into government bonds and corporate bonds, you can make a profit.
The domestic insurance industry has determined that savings-type insurance does not help performance with the introduction of the new international accounting standard (IFRS17), and is focusing on selling protection-type insurance. On the other hand, overseas insurance companies continue to sell savings insurance that provides high returns even under the same accounting standards.
The annual 6-7% of offshore insurance is not a fixed income. In principle, if an insurance company fails to invest and incurs a loss, this rate of return cannot be guaranteed. However, from 1989 to last year, the annual dividend rate of American insurance companies has never fallen below 4%. Even in 2008, when the Lehman Brothers incident occurred, the dividend rate was 6.3-7.9%. At the time, insurance companies also suffered investment losses, but paid dividends promised to customers due to their excellent soundness.
Graphics = Seohee Jeong
An official in the insurance business overseas said, “Every year, insurance companies announce on their websites whether they are paying dividends well, and most of them are 100%. Customers believe that insurance companies will keep their past dividend payout rates.” He continued, “Overseas insurance companies are good at managing their soundness, so they are able to pay consistent dividends even if they suffer losses from investments,” and added, “In a financial market with fierce competition, the dividend rate is the insurance company’s pride.”
Unlike Korea, there is a strong perception overseas that insurance is an investment product between stocks and bonds, with the role of transferring risks such as death and disease. An official in the insurance industry said, “Even though stocks, funds, and real estate can have high rates of return, there is always a risk of principal loss.” He added, “Insurance is being recognized as an investment product overseas because higher rates of return can be pursued than deposits, savings, and bonds.” “I’m receiving it,” he said.
However, since the offshore insurance subscription process is all conducted in English, you may suffer losses if you do not have a sufficient understanding of the product. Additionally, when making an insurance claim or having a problem with the contract, you have to communicate directly with the local insurance company, which reduces accessibility. Offshore insurance solicitation is not permitted under the Insurance Business Act, and such insurance is also excluded from depositor protection.
2024-02-12 21:02:48
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