S. Korea sees surge in ‘dollar insurance’ with strong dollar trend

Insurance policy sales reach $545 m by Sept., surpassing last year’s total

Graphics by Chosun Design Lab, Midjourney

With U.S. President-elect Donald Trump’s victory fueling a “strong dollar” phenomenon, the Korean won-U.S. dollar exchange rate has hovered near the 1,400-won mark, sparking increased interest in “dollar insurance policy” as a potential investment tool. This policy type allows premiums and payouts to be made in U.S. dollars.

However, financial experts caution against treating dollar insurance solely as a foreign exchange investment. They emphasize that insurance is fundamentally designed to provide risk coverage and advise consumers to evaluate whether such policies align with their long-term needs. Additionally, potential buyers are urged to carefully consider the risks posed by exchange rate fluctuations before committing to these products.

According to data from South Korea’s financial sector as of Nov. 20, combined sales of dollar insurance across the nation’s four major commercial banks—KB Kookmin Bank, Shinhan Bank, Hana Bank, and Woori Bank—reached 761.7 billion won ($545 million) from January to September this year, a sharp increase from 567.9 billion won for all of 2022. The number of policies sold also nearly tripled, rising from 1,978 last year to 5,676 by September 2024.

Graphics by Kim Ha-gyeong

Dollar insurance, categorized as foreign currency insurance, offers coverage for various policy types such as whole life insurance, annuities, and savings plans. While its basic structure mirrors conventional won-based insurance, it has unique advantages. For instance, dollar insurance often yields higher interest rates than foreign currency deposit accounts and offers potential foreign exchange gains during dollar appreciation. Notably, these gains are exempt from taxation, further enhancing its appeal.

The product’s surging popularity coincides with the ongoing strong dollar trend. The won-dollar exchange rate has recently stabilized around 1,390 won, influenced by geopolitical uncertainties. Trump’s election has amplified the dollar’s strength, with policies such as tax cuts and increased fiscal spending expected to widen U.S. fiscal deficits. This could lead to a rise in Treasury bond issuance, driving down bond prices and increasing interest rates, thereby boosting the dollar’s value.

Earlier this month, the exchange rate surpassed the psychologically significant 1,400-won threshold. Global investment firms like Goldman Sachs forecast that the dollar’s strength against major currencies will likely persist in the near term.

Financial experts urge consumers to exercise caution despite the product’s growing appeal. They stress that dollar insurance is primarily an insurance product rather than a short-term investment vehicle and recommend a long-term perspective when considering its purchase.

Consumers are also advised to account for potential risks associated with exchange rate volatility. For example, a rising exchange rate could increase premium costs, while a declining rate might reduce the payout’s value. Additionally, depending on the policy structure, falling overseas interest rates could result in lower interest accruals on premiums, ultimately diminishing the payout at maturity.

[Han Ye-na]

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