** Insurance: You'll get scammed if you don't know this (Part 11. Indemnity Insurance, Actual Cost Insurance, is not a panacea) **

Today, I would like to discuss in detail "Indemnity Insurance" (Silson), which I believe is the most important, basic, fundamental, and essential type of insurance.
When talking about insurance, many people say, "Isn't indemnity insurance enough? Why do I need other insurance?" I will explain in detail whether indemnity insurance alone is truly sufficient. This is likely information you have never known before.
In conclusion, I want to say: You should not rely on indemnity insurance alone. (Indemnity insurance is not invincible).
You might think, "Aren't you just saying that because you're an insurance agent?" But please read this slowly and judge for yourself! In fact, the 5th generation indemnity insurance that appeared this June is almost the "end of indemnity insurance." Today, I will explain the overall structure of indemnity insurance, and next time, I will cover the 5th generation in more detail.
First, indemnity insurance is also called "Silbi insurance," as it is insurance that compensates for actual losses proportionally. It is an insurance that refunds a certain percentage of the medical expenses (actual loss) incurred when I go to the hospital. From a customer's perspective, it can significantly reduce the burden of hospital bills, and because the premiums are low, it is the most popular insurance among many people. While premiums vary by generation, the new 5th generation indemnity insurance currently on the market can be joined for around 10,000 to 20,000 KRW for someone in their 30s. In the case of past indemnity insurance, the compensation ratio is better than current ones, so the prices tend to be higher; or if it is too expensive, it is likely not a standalone indemnity policy but a rider attached to a comprehensive insurance policy. (A structure where diagnosis funds or death benefits are designed together with the indemnity insurance).
Now, looking at indemnity insurance in more detail, it can be divided into 1st to 5th generations depending on when you joined, or categorized as Old Indemnity ~ Standardized Indemnity ~ New Indemnity ~ 5th Gen Indemnity. It would be good to check which category your insurance falls into and whether you joined before or after April 2013. April 2013 is very important, and I will explain this in detail later.
1st Generation Indemnity (Old Indemnity)
~ Joined before July 2009
People often say that past indemnity insurance was better, and Old Indemnity is the earliest type. However, you cannot unconditionally say that Old Indemnity is the best because, at that time, the limits and structures varied by insurance company; while some had much better conditions than now, others joined with less favorable terms. (e.g., a coverage limit of 10 million KRW). Therefore, it is important to accurately understand your specific coverage details.
Features
Most were structured to compensate without distinguishing between National Health Insurance covered (Benefit) and non-covered (Non-benefit) items.
Hospitalization: Compensates up to 100% of the out-of-pocket expense (Customer burden: 0 KRW)
Outpatient: Full compensation after deducting a fixed amount (e.g., 5,000 KRW) regardless of the type of medical institution.
Some have a low outpatient limit of 100,000 KRW, while others have a high limit of 300,000 KRW; hospitalization limits can range from 10 million to 100 million KRW, so since indemnity insurance from this era is very diverse, individual verification is required.
2nd Generation Indemnity (Standardized Indemnity)
Joined between August 2009 and March 2017
Standardized indemnity insurance appeared, unifying the diverse types of 1st generation insurance across all companies. From this point on, all indemnity insurance had the same structure, so the characteristic is that you don't need to check individual coverage details. You could choose between Standard and Optional types.
Features
Hospitalization: Compensates up to 90% of the out-of-pocket expense (80% for Standard, 90% for Optional)
Outpatient: Compensates the difference after deducting either the institution-specific deductible (Clinic: 10,000 KRW / Hospital: 15,000 KRW / General Hospital: 20,000 KRW) or 10-20% of the compensation amount, whichever is larger.
Indemnity insurance joined before April 2013 compensates by only deducting the institution-specific deductible.
3rd Generation Indemnity ("Good" Indemnity)
Joined between April 2017 and June 2021
This is a product where the three types with high loss ratios among standardized indemnity insurance were separated into riders. (Manual therapy, non-benefit injections, MRI, etc.) For these three major non-benefit items, compensation is possible up to 70% after deducting 30,000 KRW or 30% of the treatment cost.
Features
Distinction between Benefit and Non-benefit items began.
Hospitalization: Compensates up to 90% of the out-of-pocket expense (90% for Benefit, 80% for Non-benefit)
Outpatient: Compensates the difference after deducting either the institution-specific deductible (Clinic: 10,000 KRW / Hospital: 15,000 KRW / General Hospital: 20,000 KRW) or 10-20% of the compensation amount, whichever is larger.
The three major non-benefit items are compensated up to 70%.
4th Generation Indemnity (New Indemnity)
Joined from July 2021 to May 2026
This is indemnity insurance with a lower compensation ratio than standardized indemnity insurance. As the generations progress, the compensation ratio decreases, which is disadvantageous in terms of coverage, but the characteristic is that the premiums become cheaper. Up until the 3rd generation, whether I received a lot or a little in compensation did not affect my premium; instead, premiums were set based on the loss ratio of all customers in my age group using indemnity insurance. However, in the 4th generation, if I receive a lot of compensation, my premium increases, and if I do not receive treatment, a discount is possible.
Features
The insurance period has shortened to 5 years.
Up to the 3rd generation, it was joined with a 1-year renewal and 15-year maturity structure. (Old indemnity varies by product). Premiums change every year, and the indemnity insurance expires after 15 years. (What happens to the indemnity insurance after expiration is VERY!!! important. I will explain later).
Hospitalization: Compensates up to 80% of the out-of-pocket expense. (80% for Benefit, 70% for Non-benefit)
Outpatient: For Benefit items, the larger of the institution-specific deductible or 20% of the compensation amount is deducted; for Non-benefit items, the larger of the institution-specific deductible or 30%.
5th Generation Indemnity Insurance
Appearing in May 2026, this is the indemnity insurance you will use if you join now. The key point is that it will only compensate 50% for non-severe non-benefit treatments. As it passed through generations 1 to 4, the compensation ratio decreased from 100% to 70%, and now it has dropped to 50%. Ultimately, you can see that indemnity insurance compensation is decreasing over time.
Features
For Benefit items, it compensates up to 80% (same as 4th gen), but non-severe non-benefit items are reduced to 50%.
Manual therapy and non-benefit injections are excluded from compensation.
The limit for non-severe non-benefit items is reduced to 3 million KRW per hospitalization (Important).
Up to the 4th generation, if you were hospitalized, compensation was possible up to the annual limit of 50 million KRW. However, from the 5th generation, for non-severe non-benefit items that are not severe diseases (cancer, brain, heart, etc.), the limit per hospitalization has become very low at 3 million KRW. Therefore, if you undergo non-benefit surgery, your personal burden will become very high.
If you undergo a non-benefit surgery costing 10 million KRW
e.g., HIFU surgery, varicose vein surgery, Mammotome surgery, etc.
In the case of 4th generation indemnity (Personal burden: 3 million KRW)
If you undergo non-benefit surgery while hospitalized, up to 70% is compensated, so you would receive 7 million KRW from the indemnity insurance, and your personal burden would be 3 million KRW.
In the case of 5th generation indemnity (Personal burden: 7 million KRW)
If you undergo non-benefit surgery while hospitalized, you might misunderstand that you will receive 5 million KRW because the 5th gen compensates 50%. However, since the compensation limit per hospitalization is 3 million KRW, you will only receive 3 million KRW from the indemnity insurance. Your personal burden increases to 7 million KRW, which is more than double compared to the 4th generation.
As indemnity insurance compensation is rapidly decreasing, it is now impossible to cover everything with indemnity insurance alone. Since indemnity insurance is a product where insurance companies are incurring losses, compensation will inevitably get worse over time. Therefore, in the future, it is important to prepare to reduce personal burdens through individual surgery insurance, etc., in addition to indemnity insurance.
**Important**
If you have old indemnity insurance, you might think it's okay to have only indemnity insurance because it is much better than the current 5th generation. However, as I mentioned earlier, what happens after your joined indemnity insurance expires is very important, and whether you are a person who joined before or after April 2013 is the key.
Indemnity insurance is renewed every year, and for standardized indemnity, it is joined with a 15-year maturity, while for 4th and 5th generation, it is a 5-year maturity. When it expires, it doesn't mean you can't use indemnity insurance anymore; it will be extended in the form of re-subscription. The core issue is that instead of your existing indemnity insurance, it may be changed to the 5th generation indemnity insurance currently being sold.
For indemnity insurance joined before April 2013, you can maintain the existing indemnity insurance upon expiration, so if you pay premiums for life, you can continue to have the existing indemnity insurance with high compensation ratios. However, for indemnity insurance joined after April 2013, when it expires and is re-subscribed, it is converted to the indemnity insurance being sold at that time. If it expires now and is re-subscribed, it will be converted to the 5th generation indemnity insurance which compensates up to 50%.
Therefore, indemnity insurance is not invincible. Since indemnity insurance is a product with a very high loss ratio, compensation will inevitably continue to worsen, and eventually, it could become an indemnity insurance where I bear almost everything (50%, 40%... in the distant future). At that time, will you still think, "I only need indemnity insurance!"? A future will come where you receive 10 million KRW in treatment but only 3 million KRW is compensated by indemnity insurance, leaving you to pay 7 million KRW personally. In that case, diagnosis funds or surgery costs from health insurance will serve as mechanisms to reduce this burden.
You might think, "I joined before April 2013, so I can maintain it for life, so isn't it fine?" But there is something we must consider here as well. While it is possible to maintain it for life if you just pay the money, the problem is that it will become incredibly expensive.
Think about it. As we have moved through the 1st and 2nd generations, people who joined in the past are continuing to maintain their policies, but since new subscribers cannot join old indemnity insurance, the number of 1st and 2nd generation subscribers cannot increase. If some people maintain and others cancel, the number will decrease.
1st and 2nd generation indemnity insurance is more expensive because it provides more compensation than current indemnity insurance. In particular, since indemnity insurance is a renewal type, you have to pay it for life, and for the elderly, the premium often exceeds 100,000 to 200,000 KRW, so many find the premium burdensome. Therefore, many people switch to 4th generation indemnity to lower their premiums. Since the price decreases to about a quarter, people who don't go to the hospital often switch, thinking it's okay even if the compensation ratio is low.
Conversely, people who go to the hospital often and frequently claim indemnity insurance will prefer a higher compensation ratio, so they will stay in 1st and 2nd generation indemnity. Then, as healthy people move to the 5th generation and only sick people remain in the 1st and 2nd generations, the loss ratio of the overall 1st and 2nd generation indemnity insurance will continue to rise, and thus the premiums will continue to get more expensive. As the population ages, there will be more elderly people who engage in "medical shopping," and it is highly likely that 1st and 2nd generation premiums will increase several times over.
Then, a situation will arise where you have no choice but to switch to the 5th generation simply because the premium becomes too expensive. After that, every 5 years at maturity, you will continue to maintain indemnity insurance by switching to increasingly worse terms, just like those who joined after April 2013.
It is better to view insurance with a long-term perspective. It is a great relief if you are healthy and don't go to the hospital right now, but if you become complacent thinking you won't be sick in the future, you will look for insurance after you get sick in old age, and a situation may arise where it is difficult to join insurance due to medical history. Since the loss ratio of indemnity insurance is very high, there are cases where joining is refused even if you only visited a hospital for a cold within the last 3 months. (Re-evaluation after 3 months, etc.)
In the same vein, as the elderly population increases, the National Health Insurance will also see an increase in elderly people receiving benefits, but because there are fewer young people to pay health insurance premiums, the coverage scope and ratio will gradually decrease. The depletion of National Health Insurance will happen faster than the depletion of the National Pension.
What will happen in the future? How long can this reality last, where the state and indemnity insurance thankfully cover most medical expenses as they do now? I truly believe that the private insurance market will grow tremendously in the future.
If you think, "I'll prepare for it when the time comes~," I suggest you think about it while reading the posts I have written so far. Insurance is always cheaper when you are younger, so it is advantageous to prepare in advance. As you get older, you will likely get sicker, so even a slight abnormality in a medical history or health checkup could lead to situations where coverage is limited due to exclusions, joining is refused, or you have to use expensive insurance for people with pre-existing conditions.
- Check previous posts -
Part 1: Renewal vs. Non-renewal type
https://mlbpark.donga.com/mp/b.php?b=bullpen&id=202608310118356921
Part 2: Pure Protection type vs. Savings type
https://mlbpark.donga.com/mp/b.php?b=bullpen&id=202609010118370085
Part 3: 3 Major Diagnosis Funds (Cancer, Heart, Brain)
https://mlbpark.donga.com/mp/b.php?b=bullpen&id=202609020118392147
Part 4: 3 Major Diagnosis Funds (Cancer Insurance)
https://mlbpark.donga.com/mp/b.php?b=bullpen&id=202609030118423377
Part 5: 3 Major Diagnosis Funds (Brain, Heart Insurance)
https://mlbpark.donga.com/mp/b.php?b=bullpen&id=202609040118442559
Part 6: (Surgery Insurance, Type-based Surgery, Major Surgery)
https://mlbpark.donga.com/mp/b.php?b=bullpen&id=202609060118508946
Part 7: (Driver's Insurance, Auto Insurance, Settlement Money)
https://mlbpark.donga.com/mp/b.php?b=bullpen&id=202609090118579377
Part 8: (Whole Life Insurance, Term Insurance, Death Insurance)
https://mlbpark.donga.com/mp/b.php?b=bullpen&id=202609150118714776
Part 9: (Whole Life Insurance, Savings Function, Variable Whole Life Insurance)
https://mlbpark.donga.com/mp/b.php?b=bullpen&id=202609160118739184
Part 10: (Variable Insurance, Business Expenses, Whole Life Insurance, Pension)
https://mlbpark.donga.com/mp/b.php?b=bullpen&id=202609230118890198