The Supreme Court of Korea issued its ruling on the immediate annuity policy case on October 16, 2025. The Court ruled in favor of the insurance companies and affirmed the original judgment which had dismissed the claims brought by the policyholders. (Supreme Court Decision 2022Da225897, October 16, 2025).

The immediate annuity policy is a single upfront-premium insurance product where the policyholder pays a lump sum premium upon enrollment and subsequently receives a monthly survival annuity, followed by a final lump sum payment.

Beginning in 2018, a number of lawsuits were filed in relation to “maturity‑type” immediate annuity products, where policyholders receive a monthly survival annuity and, at the end of the contract term, a maturity benefit equivalent to the full amount of the premium paid. Had the policyholders won their claims, the insurance industry would have faced an estimated liability of approximately KRW 1 trillion.

To cover initial sales expenses while still ensuring the full return of premiums at maturity, these products were structured to retain a portion of the declared interest-rate returns. This mechanism was formally documented in the formulas within the premium and reserve calculation method statements. The policyholders argued, however, that because the provisions for these deductions were not explicitly stated in the policy terms and conditions, the insurers could not apply the interest retention mechanism as part of the insurance contract.

The policyholders claimed that, contrary to the insurers’ claims, the policy terms should be interpreted so that the monthly survival annuity is calculated by applying the publicly disclosed interest rate to the net premium (i.e., the premium amount minus operating expenses), without any other deductions, and they filed for damages based on such calculation. Furthermore, the policyholders argued that the insurers should be liable for the claimed amount even if their interpretation of the policy was not upheld, as they had breached their duty to explain.

Initial rulings at the District Court (the court of first-instance) were mixed, with some cases favoring the policyholders and others the insurers. However, in November 2022 the Seoul High Court ruled in favor of the insurers. Following this significant appellate decision, subsequent rulings have consistently been in favor of the insurers.

The Supreme Court held that the policy terms could not be interpreted in the manner asserted by the policyholders. Regarding the issue of the “duty to disclose and explain,” while the Court acknowledged that it was difficult to conclude that the insurers had fully discharged their duty to clearly disclose and explain the key criteria for determining the annuity amounts, it held that the annuity amounts must be calculated in accordance with the calculation methodologies set out in the premium and reserve calculation methodology statements, based on the general principles governing the interpretation of insurance contracts and the specific facts of this case.

Specifically, the Supreme Court considered, among other things, the purpose, structure, and market practices associated with maturity‑type immediate annuity products and other similar products sold in tandem; the level of returns that an average policyholder, upon reading the policy terms, could reasonably and legitimately have expected; the collective interests of the policyholder group as a whole; and the fact that the subscription documents set out illustrative monthly annuity amounts by product type. Taking these factors together, the Court concluded that an objective and uniform interpretation of the policy terms clearly leads to the conclusion that the annuity amounts would be calculated in accordance with the calculation statement, and that such interpretation could not be viewed as unfairly disadvantageous to policyholders.

Meanwhile, in rendering its decision, the Supreme Court also noted that the monthly annuity amount to be paid to the policyholder was a material matter. Therefore, the insurers should have explicitly stated and explained the general deduction mechanisms for the retained amounts in the policy terms. The Supreme Court also noted that the general reference in the policy terms stating that calculations are made “in accordance with the premium and reserve calculation method statements,” or the inclusion of illustrative annuity amounts by product type in the subscription documents, is not sufficient.

We represented the majority of the insurance companies involved in this immediate annuity litigation. Over the course of approximately seven years of court proceedings, we consistently highlighted the fact that the policyholders had selected these products after reviewing the comparative annuity terms provided by the insurers for various product types, and that no undue disadvantage was suffered by the policyholders. Our arguments ultimately led to the Supreme Court’s ruling, which confirmed that the annuity amounts, as had been calculated and paid by the insurers, were appropriate. As noted above, however, the Supreme Court also made it clear that a general reference in the policy terms to the fact that calculations would be conducted in accordance with the calculation statement or the inclusion of illustrative annuity amounts in the subscription documents, was not sufficient to discharge the insurer’s duty to disclose and explain and that the general deduction mechanism for retained amounts should have been explicitly stated and explained in the policy terms. 

In light of this decision, insurers should ensure that the methodology for calculating insurance benefits is clearly described under the policy terms and that such terms are fully explained to policyholders. Furthermore, it will also be important to closely monitor the regulatory authorities’ position on these issues.
 

[Korean Version]