The advertised “120% refund rate at year 10” on a seven-year-pay whole life policy in Korea works out to about 2.84% compounded annually. Pay 300,000 won a month for 84 months and you contribute 25.2 million won; at year ten you receive 30.24 million won. Because the premiums are spread over seven years, the money is actually tied up for an average of 6.5 years rather than ten. Convert on that basis and the effective annual rate is 2.84%. That gap between the headline percentage and the felt interest rate is the whole story.
This competition has already drawn regulatory fire. In 2024 the Financial Supervisory Service moved against refund rates in the 130% range, and Money Today reported that the guideline would push rates down into the 110–120% band while forcing insurers to assume mass-lapse risk more conservatively than before. By February 2026, Korea Insurance News found rates settled around 120%, with Dongyang Life's seven-year-pay product near 119% at the ten-year mark.
What annual rate does 120% actually mean?
A refund rate is just the payout divided by total premiums. There is no time dimension inside it. To add one, you first have to decide how long the money was really committed. Treating 84 monthly payments as evenly spread puts the average contribution date at month 42, or 3.5 years in. Receiving the money at year ten leaves an average holding period of 6.5 years. The effective annual rate is the 6.5th root of the refund rate, minus one.
On 300,000 won a month over seven years — 25.2 million won total — the bands work out like this.
| Refund rate at year 10 | Total paid (mn KRW) | Payout (mn KRW) | Gain (mn KRW) | Effective annual rate (%) |
|---|---|---|---|---|
| 110% | 25.20 | 27.72 | +2.52 | 1.48 |
| 119% | 25.20 | 29.99 | +4.79 | 2.71 |
| 120% | 25.20 | 30.24 | +5.04 | 2.84 |
| 130% | 25.20 | 32.76 | +7.56 | 4.12 |
One benchmark makes it concrete. Compounding at 3.0% a year for the same 6.5 years turns principal into 121.2%. So a 120% product does not match a 3% deposit — it lands slightly below one. Against the pre-regulation 130%, which came to 4.12%, a headline gap of 10 percentage points shrinks to 1.28 points of actual yield. Refund-rate figures swing wider than the interest rates behind them.
If you finish paying in seven years, why quote year ten?
Marketing leads with the payment period, but the refund figure is benchmarked to the tenth year after purchase. Between those two points sits a three-year holding stretch, and most of the excess above 100% accrues there. Product-level figures compiled by Newstomato in 2023 showed Pubon Hyundai Life at 130.3% (five-year pay) and 130.2% (seven-year pay) at year ten — while the same policies returned only 79.3% and 78.6% at the moment premiums finished.
The distance between those two numbers is the product. Apply 78.6% to the case above: you pay in 25.2 million won and get back 19.81 million. That is a 5.39 million won loss, or -6.65% a year over the 3.5-year average holding period. The same contract swings between +4.12% and -6.65% depending on whether you hold three more years.
A refund rate belongs to whoever held to the stated date. Stop at paid-up and 78% of your principal is what remains.
That structure is exactly what the regulator targeted by capping the paid-up refund rate at 100% or below. Returning more than principal the moment premiums end lets a protection product be sold as savings, and leaves the insurer facing concentrated payouts at the lapse point. Since timing of contributions and withdrawals drives the outcome, it pays to approach this the same way as the withdrawal conditions on pension savings accounts and IRPs.
What an 82% lapse rate revealed
In September 2026 the Korea Economic Daily reported that KB Life's “Seven-Year Promise” whole life policy showed an 82% lapse rate at the seven-year mark. Only 18% of contracts remained. Launched in March 2019, it is a 20-year-payment whole life policy designed to return roughly 100% of main-contract premiums paid if surrendered at year seven. The structure differs from a true short-pay product, but the design logic — leading with a refund rate at one specific date — is the same.
The problem is the gap between assumption and outcome. The insurer had modeled a 30–40% persistency rate; 18% actually stayed. The Financial Supervisory Service has requested data on comparable products from life insurers to check whether the difference between assumed and realized lapse rates was properly reflected in contractual service margin (CSM) and insurance earnings.
For a buyer, the reading is simple. If 82% left on schedule, the policy was consumed around its refund date rather than held for lifetime protection. If death benefit is the goal, the surrender-date refund rate should not enter the decision at all; if cash management is the goal, the comparison should run on effective annual yield, not on refund rate. Stacking both purposes into one contract makes it hard to judge by either standard.
What to watch
- The reference date printed next to the refund rate — “year 10” versus “at paid-up” splits the same policy into 130% and 79%
- The year-by-year surrender value table in the product disclosure, from the paid-up year through the benchmark year
- Whether the excess above 100% is base accumulation or a bonus tied to one date, and if a bonus, its exact conditions and timing
- The converted annual rate — take the root of (benchmark years minus half the payment period) so the product sits on the same axis as deposits and bonds
- Convert any deposit rate you compare against to an after-tax basis; refund rates are quoted without that distinction
- The outcome of the regulator's data request and any resulting change to lapse-rate assumptions, which will set refund levels on new products