By Yi Whan-woo
Financial burdens exacerbated by high inflation and costly borrowing rates are forcing more insurance subscribers in Korea to cancel their contracts to secure cash as much as possible.
According to the Korea Life Insurance Association, Monday, a total of 1.14 million contracts signed by its 22 member companies and their respective clients were terminated before their expiration dates in January and February.
The terminations occurred for two reasons — either clients voluntarily canceling the contracts or companies doing so because the subscribers did not pay premiums on time repeatedly and breached corresponding terms and conditions.
The number of canceled contracts has been increasing for the past three years. In the first two months of 2022, the number was at 903,754 but it jumped to 1.12 million over the same time period in 2023.
The cancellations come at the cost of a penalty, and those who cancel the contracts will not be returned the full amount of money they paid as premiums.
"Even so, subscribers have more pressing financial issues to deal with, and a growing number of them are giving up a portion of the premiums," the association said.
For instance, subscribers may lose their homes purchased on mortgages if they fail to make payments of principal and interest on time in the middle of a costly borrowing rate.
The benchmark interest rate has stood at 3.5 percent since January 2023, marking its highest level since December 2008.
Consumer inflation also remains higher than the government's annual target of 2 percent. In particular, sale prices of staple foods, including fruit, vegetables and seafood, surged and added to households' financial woes.
Accordingly, in a survey taken by the association, 32.8 percent of subscribers who canceled their contracts responded that their financial burden was too heavy to pay the premium.
Meanwhile, the association said that a higher number of contract cancellations could worsen insurers' profitability as they will need to spend more to refund the premiums they received from clients.
It noted that the 22 life insurers paid 12.89 trillion won in the first half of 2023 to clients after they canceled savings insurance treated by the companies.
The amount marked a 31.9 percent increase from the same time period in 2022.
In 2023, the 22 companies posted a cumulative net profit of 5.95 trillion won, up 37.6 percent year-on-year.