[Finance Microscope] Managing Money After Dementia... Insurer Trusts to Broaden 'Lifetime Asset Management'

Insurance Provides Coverage, Trusts Enable Asset Management
Potential Expansion of Trust Scope for Insurance Claim Rights
"Deciding How to Use Funds While Cognitively Capable Is Crucial"

The insurance industry’s response to an aging population is expanding from simply paying out dementia diagnosis and care benefits to managing assets for dementia patients after diagnosis. This trend is being reinforced by life insurance companies introducing trust products that allow customers to use their own assets as living and care expenses, as well as legislative discussions about using trusts to manage insurance proceeds for dementia patients, thus strengthening the function of managing assets during their lifetime.

According to the insurance industry on October 7, Hanwha Life launched the "Dementia Care MMT (Money Market Trust)" in August, allowing customers to use their assets for living expenses and nursing costs after a dementia diagnosis. The MMT is a trust-type product in which funds can be deposited and withdrawn at any time and are managed in relatively safe short-term financial products such as repurchase agreements (RP). Under normal circumstances, the fund is managed like a regular MMT, but if the customer develops moderate or higher levels of dementia, payout begins according to a method predetermined at the time of enrollment. If cognitive impairment at a level of 2 or higher on the Clinical Dementia Rating (CDR) scale is observed, a special contract provision is triggered, allowing the trust manager to claim care costs within the available balance.

The payout method can be chosen from the following options: a lump-sum payment for immediate needs, regular payments over a defined period, or special payments in which actual costs incurred at hospitals or nursing homes are covered from the trust asset. The proportion paid using each method is determined in advance from the MMT balance. In contrast to traditional dementia insurance, where the policyholder pays premiums and receives a payout when a covered event occurs, the Dementia Care MMT allows customers to deposit their existing financial assets into a trust to cover living expenses after developing dementia.

For these products, the subject of the trust is not future claims to insurance payouts, but rather currently held assets. Insurance guarantees the economic risks related to developing dementia, while a trust provides planned management of assets after dementia, and these two are operated as separate solutions.

Meanwhile, there are moves to reform the system so that the right to claim insurance payouts for dementia patients can be put into a trust for asset management purposes. Last month, Kangil Lee, an assemblyman from the Democratic Party of Korea, sponsored a bill to promote the use of trusts as a tool for lifetime asset management.

The notable point is that the scope for using insurance payout claim trusts may be broadened. The proposed amendment raises requirements for trusteeship of insurance payout claims, currently set by Presidential Decree, to the level of statute and would allow the details of permissible trusteeship to be further specified in Presidential Decrees. The intent of the proposal is to establish the institutional foundation for insurance payout claim trust products for the elderly and dementia patients as beneficiaries. If, in the future, rights to claim dementia insurance benefits are included as permissible trust subjects in the enforcement decree, it may become possible for a person with sufficient cognitive faculties at the time of insurance enrollment to pre-plan how their future payouts will be used.

Dementia insurance payouts differ in character from death benefits, as a policyholder’s cognitive faculties may be impaired at the time of the payout. For death benefit trusts, the main purpose is to specify how much and when insurance benefits are distributed to surviving family members after the policyholder’s death. If trusts for dementia insurance payout rights become possible, the function of trusts may expand to allow policyholders to utilize insurance proceeds for treatment and other purposes during their lifetime.

The bill is currently under review in the National Assembly. Specific details are expected to be fleshed out in subsequent statutes and enforcement decrees after the law's passage.

For asset management of dementia patients, how assets are used is as important as protecting them

While Korea is seeing a trend toward expanded use of trusts for post-dementia asset management, the international discussion focuses on how such assets will be managed over the long term. The Dai-ichi Life Research Institute in Japan noted that simply aiming to preserve principal for the elderly with declining cognitive ability needs to be re-examined to see if it sufficiently supports an unexpectedly long post-retirement period.

The research institute advised that while essential living and care costs should be managed safely, surplus funds that are unlikely to be used in the near term could be invested. For example, funds likely to be needed within one year could be placed in deposits, while funds to be used within three years might be diversified into low-volatility products such as government bonds.

However, they stressed that, since decisions about asset management for the cognitively impaired must include safeguards, the scope of surplus funds should be determined with financial experts, and the individual should, while able, record their desired method of asset management in advance. The research institute also pointed out that managing assets for elderly dementia patients is not solely a personal or family issue, and suggested that society as a whole should discuss post-retirement asset management strategies suitable for times of rising inflation.

An industry official said, "Dementia is not a risk that ends with a single insurance payout, as care and treatment costs may continue for a long time after diagnosis," adding, "It is important to have mechanisms in place to ensure stable asset management for people who may be alive but no longer able to directly handle their assets."

This content was produced with the assistance of AI translation services.