Use the death benefit from life insurance as retirement living expenses!
A system will be introduced that allows the death benefit of a life insurance policy to be received as an annuity during the policyholder's lifetime, rather than at death.
Recently, financial authorities have been promoting a "death benefit liquidity scheme" to address the income issues faced in retirement due to low birth rates and an aging population, which is scheduled to be implemented in the second half of 2025.
What is the liquidity of death benefits?
The liquidity of death benefits is a system that allows individuals to convert the insurance benefit they will receive after their death into an annuity or service during their lifetime.
This system helps policyholders to receive benefits greater than the premiums they have paid in the form of an annuity or various services during their lifetime.
The annuity option provides monthly payments without additional costs, while the service option offers various living services such as nursing care, rehabilitation, and healthcare, providing practical assistance.
Eligibility and Conditions for Applying for Annuity Conversion of Life Insurance
To convert life insurance into an annuity, several conditions must be met.
First, it must be a life insurance contract with a fixed interest rate, and the premium payment period must be at least 5 years. Additionally, the policyholder must have held the policy for more than 10 years, and the policyholder and insured must be the same person. Lastly, there should be no outstanding insurance policy loans. If these conditions are satisfied, conversion is possible.
Variable life insurance, interest-linked life insurance, short-term premium life insurance, and high-coverage death benefit contracts are excluded from the liquidity scheme.
If applying at the age of 65 or older, anyone can apply regardless of income or asset conditions.
Examples of Receiving Death Benefits in Annuity Form
For example, if a person enrolls at age 40, paying a total of 36,240,000 won over 20 years at 151,000 won per month and setting a death benefit of 100 million won, if they choose a liquidity rate of 70%, the amounts receivable are as follows:
Starting to receive at age 65 will give an average monthly amount of 180,000 won totaling 43,700,000 won, while starting at 70 years will provide an average of 200,000 won, totaling 48,870,000 won. Starting from 75 years will yield an average of 220,000 won totaling 53,580,000 won, and starting from 80 years will give an average of 240,000 won totaling 57,630,000 won.
Even after the liquidity process, a certain percentage of the death benefit, specifically a minimum of 10%, will still be maintained, allowing the remaining death benefit to be inherited. It is essential to use this information to make financial plans wisely.
Advantages Compared to Insurance Policy Loans
The main advantage of the life insurance liquidity method is that compared to traditional insurance policy loans, there are no interest costs or repayment obligations.
This method incurs no additional interest burden and requires no repayment obligations on the amounts received. Additionally, it is possible to provide coverage on any remaining death benefit.
On the other hand, if the premiums or principal on an insurance policy loan are not repaid, interest costs can skyrocket, and there is a significant risk that the death benefit will decrease or disappear. In this regard, life insurance liquidity can be considered a more advantageous option.
Service-Type Products: Providing Various Life Services
Service-type liquidity provides various life services instead of cash. For example, it includes nursing services, nursing facility fees, and health management services. Consumers can use these services based on their needs, offsetting the cost with their insurance benefits.
This approach is expected to radically change the services offered by insurance companies, providing consumers with better options and contributing to increasing the value of insurance.
Background and Expected Effects of the Liquidity System Introduction
In our country, due to rapid aging and increased poverty rates among the elderly, preparation for retirement is essential.
Life insurance has been underutilized, but through the death benefit liquidity system, it is expected to become an important tool for seniors to secure stable income.
As the liquidity of insurance progresses, mutual benefits between consumers and insurance companies are anticipated, contributing to increased utilization of insurance.
Ultimately, these changes will support the stable lives of the elderly and provide opportunities to maximize the value of insurance. Concrete implementation of the system and new product launches are expected in the near future.
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