South Korean life insurers have suspended new sales of the '7-year whole life insurance' products that offer returns of 100% of premiums paid upon surrender after seven years after the insurance regulator flagged concerns in the product.
The 7-year whole life insurance products are designed so that even if premiums are paid in instalments over 20 years, surrendering the policy at the 7-year mark returns 100% of the base contract premiums paid up to that point as surrender value. Compared with standard whole life insurance, which typically requires more than 10 years to receive surrender value equivalent to premiums paid, consumers can recover their principal much faster.
The Financial Supervisory Service (FSS) feels that the product can be mistaken for savings-type products and also flagged financial soundness risks. The product's premium income surged to KRW950bn ($698.5m) in 2025, more than triple the KRW310bn recorded in 2024. The FSS now requires surrender values to be set evenly across the entire policy term and mandates that products reaching 100% surrender value during the premium payment period apply lapse rate assumptions at least 30 percentage points higher than before.
The FSS has now stipulated that when designing whole life insurance products, surrender values should be set at the same ratio as the policyholder reserves of standard whole life insurance across the entire policy term, a move that will block insurers from artificially inflating surrender values at specific points to lure customers.
Additionally, for products where the surrender value reaches 100% during the premium payment period, the FSS now requires lapse rate assumptions to be set at least 30 percentage points higher than before. This measure aims to prevent insurers from under-reserving insurance liabilities or overstating future profits by assuming overly optimistic lapse rates, and to encourage them to secure sufficient financial capacity.
This regulatory intervention is an extension of the FSS's ongoing efforts to prevent mis-selling of whole life insurance.