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Azamat Yerdessov: How endowment solves the financial objectives of Kazakhstanis

Our portal Lifeinsurance.kz continues a series of publications by experts of the life insurance market. Azamat Yerdessov, the Board Chairman of JSC LIC Freedom Finance Life, talks about how endowment solves the financial objectives of people in Kazakhstan.
Azamat Yerdessov: How endowment solves the financial objectives of Kazakhstanis

People use different financial instruments in different countries. For example, the average European invests in deposits to save money. It is impossible to earn on deposits, and in some countries the interest rate is even negative. In private funds and insurance companies, he prefers to save money for the future and protect his present from unforeseen situations. And the securities allow him to earn. Of course, in reality, he has much more financial instruments and, as a rule, he uses most of them.

The average Kazakhstani has no fewer financial instruments at hand, but he uses only a few: deposits, loans and compulsory insurance. This is neither bad nor good. It is just how our financial culture has been formed.

However, I am confident that if a person wants to become financially independent, he should focus on other tools as well and start building his financial independence with a fundamental financial instrument, i.e. life insurance.

Financial objectives and goals

Each of us has our own financial goals and objectives. By and large, they are the same: secured old age, housing, education (for us and our children), security, health and dreams. There are financial instruments for each objective, but there is one tool suitable for most of these goals, it is universal life insurance.

This tool includes deposit and life insurance terms. On one hand, you pay fees and save money, as in a bank. On the other hand, after the first installment your life is insured against unforeseen situations, accidents and critical diseases.

Universal life insurance will suit everyone who wants to save money with guarantee and protect themselves from unforeseen expenses. However, you need to be prepared that it will take a long time to save, because the product is effective only in the long run. The optimal period is 5-10 years with monthly, quarterly or annual contribution payments. This is what attracts most customers, because it guarantees your money saving without withdrawals for impulse purchases.

The insurance company calculates the insurance amount (the amount of savings), taking into account investment income. This allows offset inflation and increase savings.

How universal life insurance solves financial problems

Let us consider a few common examples of how endowment solves financial problems.

Saving purpose

Saving characteristics

Coverage

Save for the secured old age

You set a financial goal and determined the term for which you must achieve it.

The insurance company will set up a convenient saving schedule for this goal.  

The entire saving term you need to pay contributions on monthly, quarterly, annually basis.

The entire saving term your life is covered from unforeseen situations, accidents and even critical diseases.

If something happens during the saving term, the insurance company will make an insurance payment. In case of client’s decease, the insurance company would pay the entire contract amount to his heirs even if the client paid only part of the premiums.

If nothing happens during the entire contract term, the insurance company will also pay the insurance amount in full.

Save up for housing

Save for the startup capital of the child to his 18th birthday

Save up for the wedding

Save up for another big goal

To save up for education of a child in a good university.

For example, a child will finish school only in 8 years. Anything can happen during this period. We cannot foresee this, but we know one thing - education will rise in price, by 10% each year in average.

Endowment programs for educational purposes will help reduce the cost loading in 8 years and save money.

Your life is insured during the entire saving term. The insurance from injury or critical illness for your child may be included. If something happens, the insurance company will pay.

If an insurance event (death) occurs with a parent within 8 years, the company will pay the entire insurance amount that has been planned under the contract to save for education (even if the parents have managed to pay only a part of contributions)

For 8 years, the education will go up in price, but you will be protected from this, since the insurance amounts are calculated with an allowance of a substantial investment income. 

Endowment peculiarities 

Endowment programs allow saving in tenge. But there are programs that are indexed at the rate of USD. Such programs not only help saving money for some purpose, but also protect your savings from devaluation, which is very important for Kazakhstani people.

Programs

Saving characteristics  

Coverage

One-off contribution

You pay one-off contribution in tenge.

The saving is 3-10 years. The return is in foreign currency from 3.1%.

Upon the contract expiry you receive savings in tenge with indexation (a coefficient is applied that is equal to the ratio of the dollar exchange rate at the payment date to the dollar exchange rate at the moment of the conclusion of the agreement). If during this period the dollar exchange rate grows, you will get more in tenge.

The whole saving period your life is protected from unforeseen situations.

In case of client’s decease, the insurance company will make insurance payment to the heirs.

In contracts with periodic contributions, you can include coverage against injuries, hospitalization or temporary disability as a result of an accident, insurance against critical diseases and other cases.

 

Several contributions

You pay periodic contributions in tenge with indexation.

The saving term is from 5 years. The return differs from the one-off contribution program.

If, during the contract term, the dollar exchange rate grows, you pay new contributions at the dollar exchange rate on the next installment payment date.

Upon the contract expiry, you receive savings in tenge with indexation. If during this period the dollar exchange rate grows, you will get more in tenge.

It is important to understand that universal life insurance is not an alternative to deposits or any other financial instruments. As well as deposit is not an alternative to investment in securities. All these are different financial instruments that have their own tasks, features and advantages. If you want to earn a lot, invest in securities. If you want to invest in a safe instrument and keep savings from inflation, open a deposit. And if you want to save up for your goal and at the same time be protected from unforeseen situations, endowment is the best option.

Analyze your goals and objectives and select the best instrument.

The photo is a courtesy of the company’s press service.

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