‘What a unique name’… Universal insurance, keep this in mind when signing up [보험톡톡]

Most of us subscribe to at least one insurance policy in our lives. However, few people know exactly why they need the insurance they signed up for and what kind of coverage it includes. Or, to be more precise, maybe they don’t want to know because of the vague perception that it’s difficult. In order to make difficult insurance easier and more fun, we deliver various insurance industry news and investment information in a ‘light’ way. [편집자]

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[이코노미스트 윤형준 기자] Among the insurance products, there is a product with the word ‘universal’ attached, which is attracting attention. Universal insurance is a product that adds features such as early withdrawal and free payment to whole life insurance or pension insurance. This flexibility has the advantage of being able to adjust the amount and timing of insurance premium payments, but there are disadvantages that consumers may not be aware of, so they need to be careful when signing up.

Universal insurance is an insurance developed in the United States in the late 1970s. It was designed to overcome the crisis, as the high interest rates continued at the time, life insurance companies’ funds were flowing out to other financial institutions, and insurance subscriptions were decreasing.

The biggest advantage of universal insurance is flexibility in paying premiums and utilizing funds. The early withdrawal function allows you to withdraw funds without fees within a certain number of times and amount within the scope of the cancellation refund, which is useful when you need urgent funds.

Additionally, the payment deferral function allows you to temporarily postpone insurance premium payments after the mandatory payment period. When there are temporary financial difficulties, the contract can be maintained. If you utilize the additional payment function here, you can increase your savings by paying additional insurance premiums when you have spare funds, thereby increasing the cancellation refund or guaranteed amount.

However, behind these advantages, universal insurance has several disadvantages that consumers should be aware of. First of all, early withdrawal may reduce the guaranteed amount or cancellation refund, which may affect long-term coverage. Additionally, there are limits to the number or amount of withdrawals, so it may be difficult to withdraw the desired amount of funds when necessary.

In addition, when payment is deferred, the monthly replacement insurance premium is automatically paid from the savings to maintain the contract, but if the savings are insufficient, there is a risk of contract termination. In particular, if you postpone payment for a long period of time, your savings may be depleted and the contract may be terminated, and you may have to temporarily pay a large amount when reinstated after termination.

Fees may also be incurred when making additional payments, and the cancellation refund rate may be lowered depending on the published interest rate. This may result in unexpected cost burdens for consumers who want to increase cancellation refunds or guaranteed amounts through additional payments.

In addition, even if you are exempt from payment of insurance premiums according to the terms and conditions, you must pay the insurance premium and interest previously paid in lieu (deferral of payment) to receive the benefits without disadvantage. This means that even if consumers expect to benefit from payment exemption, they may actually incur additional cost burdens.

The problem is that mis-selling of universal insurance with its pros and cons continues. The Financial Supervisory Service issues consumer alerts every one to two years as consumer complaints related to incomplete sales of universal insurance increase. Some insurance planners emphasize only the flexibility of universal insurance, mistaking it as a bank account, or mistaking protection insurance for savings insurance.

The Financial Supervisory Service said, “Universal insurance is different from banks’ frequent deposit/withdrawal products,” and urged consumers to “be careful as early withdrawals may result in a decrease in the guaranteed amount or insurance period.”

ⓒThe Economist (Unauthorized reproduction and redistribution of ‘The Economist’s economic news for tomorrow’ is prohibited.