One of the main advantages of such a policy is that the insured and his relatives get financial protection from the consequences of unforeseen circumstances. “For example, an accident or illness can prevent a person from working, and it can seriously harm the family's budget. When the breadwinner passes away, the family may find itself in a very difficult financial situation. The task of the insurance policy in this case is to make the payment to the family. Another important function implemented by endowment is a guaranteed capital formation, as at the end of the insurance period, the client receives the entire insurance payment with return on investment,” explained the acting Chairman of the Board of LIC Halyk Life Andrey Dzheksembayev.
The family of the insured can receive a payment from the insurance company upon the occurrence of certain risks. They must be specified in the contract. “For example, a temporary disability, injury, hospitalization, critical illness or disability after an accident. The payment after injury is made in the amount of a certain percentage of the selected insurance amount for injuries. In case of disability, the insured is exempt from paying insurance premiums or a certain percentage of the insurance coverage may be paid,” the source informed.
The contract can be concluded from the age of 18
The endowment life insurance agreement can be concluded for 5, 10 or even 20 years. As explained by the Board Chairman of LIC Nomad Life Kairat Chegebayev, the age of the insured must be from 18 to 70 years. Insurers, however, cannot insure those with disabilities.
“If the insured has certain diseases, the coefficients that increase the insurance rate can be used, that is, the policy will cost more. In some cases, we suggest adjusting the insurance program in terms of insurance coverage. Sometimes an insurance company is forced to refuse a client to conclude a contract because of his health condition,” he noted.
The term of an endowment life insurance contract depends on the policyholder’s goal. “For example, it will take several years to save up for a child's higher education, usually three to six. The contract is concluded for this period. If a person wants to protect their savings from devaluation, it is advisable to draw up an agreement for three years or more. In general, it is more effective to conclude endowment insurance programs for a long run, for example, 10 years,” explained Azamat Yerdessov, the Chairman of the Board of Freedom Finance Life.
Each insurance company has a different premium for the purchase of such a policy. The annual insurance premium usually starts from 60 thousand tenge. The premium amount depends on the purpose, which the policy was purchased for.
“For example, if the insured wants to save up for child’s education, he will have to make insurance premiums on a monthly, half-year or annual basis. Their size and amount under the agreement depend on the cost of schooling. The annual premium under such agreements is 200 thousand tenge in average,” said Azamat Yerdessov.
There are also programs for which the insurance premium is paid only once, when the contract is concluded. “For instance, according to one of our programs, the minimum premium amount for registration of an agreement starts from 1 thousand dollars. But most often, clients conclude an agreement in the amount of 100 thousand dollars at the exchange rate in tenge under this program,” the interlocutor clarifies.
The savings are invested in risk-free assets
The process of an insurance agreement conclusion is as simple as opening a deposit. “When buying a policy, the policyholder determines the amount of savings that he would like to receive at the end of the insurance period. And the insurance company calculates the percentage of guaranteed profitability for the entire insurance term. Endowment insurance policies also participate in the insurer's profits. Starting from the third year of the contract, the insurer distributes dividends based on the results of the completed financial year,” said Gulzhan Dzhaksymbetova, the Chairman of the Management Board of LIC Centras Kommesk Life.
The financial regulator places high demands on insurers in terms of financial stability.
“LICs, as a rule, invest a significant part of their investment portfolio in debt instruments of high-quality and highly reliable issuers with high credit ratings. This allows them to be financially stable and reliable in the long term. Companies mainly invest in bonds of the Ministry of Finance, quasi-state companies and the National Bank’s notes,” LIC Halyk Life informed.
Insurance payments can be received by heirs
In addition to return on investment, this policy has several other advantages. One of them is possibility of getting savings upon the expiration of the contract term by both the policyholder and person specified by him in the contract. “If the person indicated as the beneficiary in the contract dies, his heirs have the right to receive the insurance payment. Another pro is that the policy is not subject to divorce settlement, not included in the list of recovered property, and not subject to declaration,” says Gulzhan Dzhaksymbetova.
It is important that the family of the insured can receive the insurance payment in the amount of coverage which he has been insured for, except and only to the extent of some cases stipulated in the contract by each LIC individually. “It doesn't matter how many insurance premiums were paid by the insured. There is no need to wait six months here, the payment is made immediately after all the documents have been submitted, and decision on payment has been made,” LIC Halyk Life noted.
No double tax
Individual income tax (IIT) was previously charged at a rate of 10% on incomes that were used to purchase an endowment insurance policy. IIT was also subject to insurance payments; this mechanism was triggered when the term of the insurance contract expired, and the insured event had not yet occurred. “However, as of 2018, there has been no double taxation of payments and bonuses. We hope that the current tax incentives on IIT will additionally motivate Kazakhstanis to conclude endowment life insurance agreements,” said Kairat Chegebayev, the Board Chairman of LIC Nomad Life.
According to him, another benefit of such a policy is that the accumulated funds are not subject to arrest or property dispute settlement.
As Kairat Chegebayev explains, extra options can be added to the insurance agreement. “For example, loans can be issued against the security of an insurance policy. Endowment life insurance contract can also cover additional risks. Let me give you an example: if the insured is hospitalized or temporarily disabled, the insurance company can reimburse him for the treatment costs and lost earnings during the period of illness,” the interviewee noted.
As they noted in the LIC, more premiums were attracted on endowment life insurance in January-March 2021 compared to the same period in 2020. Most insurers report that Kazakhstani people prefer long-term insurance agreements.
Photos are from open sources.