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How endowment insurance can increase private assets

The COVID-19 pandemic has significantly staggered the country's economy over the past two months. The collapse of oil prices to a negative mark, temporary suspension of work in all sectors and uncertain situation of tenge in the foreign exchange market are clear indicators of another financial crisis. Azamat Yerdessov, the Board Chairman of life insurance company Freedom Finance Life, told how to save and increase savings during the devaluation with the help of endowment insurance programs.
How endowment insurance can increase private assets

- What is the main feature of endowment life insurance programs?

- First of all, endowment life insurance programs are products that combine insurance and investment functions. It means, you can simultaneously insure health and life from unforeseen situations, and at the same time, save money. This is the main difference from the "usual", for example, medical or travel insurance.

- What is the operating principle of such programs?

- Having purchased an endowment insurance policy, the client pays insurance premiums during the insurance period. The insurance amount is indicated in the policy and paid in case of an insured event or at the end of the life insurance contract. The insurance amount is built on contributions made by customers, as well as guaranteed return on investment. The policy may include additional types of insurance cover against accidents, injuries and critical illnesses.

- What is the difference between endowment and deposits?

- The endowment insurance programs and bank deposits have several differences. Firstly, the average interest rate on savings deposits in foreign currency is below 1% in Kazakhstani banks. It is 2.3-3.4% per annum under endowment life insurance programs. This makes endowment insurance a more profitable investment tool. Secondly, bank deposits do not provide protection against illness, injury or death. Thirdly, in most cases, deposits allow save in the short term, from a year to several years. Endowment programs are designed to save in the long run, from 3 to 15 years or more.

For example, it is possible to draw up a contract under the Freedom Capital program in our company. Throughout the insurance period, it will protect not only from unexpected circumstances wherever you are, but also against the dollar growth and will provide a high return in foreign currency from 3.1% and more at the end of the contract.

- In what currency can insurance premiums be made?

- Insurance premiums are paid in tenge. The contributions and payments in indexed endowment programs are tied to the US dollar. Let us assume, a client has entered into insurance contract for 10 years and paid a fee of 2,175,000 tenge, which is $5,000 with approximate rate for 2020 of 435 tenge per dollar. The insurance sum will be 3,001,935 tenge or 6,901 USD (which is 1,901 dollars more than the amount of the contribution). At the end of the contract, the client receives the payment in tenge with the rate at the date of payment in the future.

If the dollar exchange rate grows over these 10 years, for example, its value will not be 435, but 500 tenge per dollar, the accumulated amount in tenge equivalent will amount to 3,450,500 tenge, respectively.

- Does it mean that endowment insurance can protect against exchange rate fluctuations?

- If devaluation occurs during the accumulation under the endowment program, and the dollar rises in price, the policyholder receives in tenge much more than he initially paid. The payout of the accumulated amount with indexation to the dollar is carried out under the Freedom Money program as well.

- How long can a life insurance contract be concluded for?

- One of the main advantages of endowment insurance is ability to pay insurance premiums monthly for several years. As a rule, the clients indicate accumulation periods for policies with indexation to USD from 3 years up to 10-15 years for policies in tenge with participation in profits. Payment on endowment program can be made monthly, quarterly, half-yearly, annually and at a time. The contribution amount may be from 5,000 tenge.

- Who benefits from the acquisition of endowment insurance products?

- Endowment agreements are most often concluded by clients aged 30 to 45 years. There is a customer for each insurance product. For example, our company has a suitable program Freedom Education for parents who plan to give their child a decent education locally or abroad. There are also suitable products for customers who want to protect themselves and their families from unforeseen situations related to loans, accidents, illnesses and decease.

- In what cases are insurance payments usually made?

- First of all, it is decease of the insured as a result of an accident or illness. Coronavirus infection is no exception. If the insured event is associated with COVID-19, then the payment will be made in full. If the client chooses additional types of protection when concluding the contract, for example, in case of critical illnesses, such as cancer, heart attack, stroke, the insured will receive payment upon diagnosis and may use the payment amount for treatment and rehabilitation. Insurance payments are also made upon receipt of bodily injuries, disability of group 1 and 2 due to an accident or hospitalization.

- What is the dynamics of the endowment program development?

- The most developed countries in life insurance are the USA, China, Canada and the countries of the Asia-Pacific region (Taiwan, Hong Kong, South Korea and Japan). Kazakhstani life insurance is still at the development stage.

However, the assets of Kazakhstani insurance companies providing endowment insurance products grew by 33% last year, and insurance premiums - by 55.7%, and amounted to 438.6 billion and 197.2 billion tenge, respectively.

The fact that confidence of Kazakhstani people in endowment insurance is growing is evidenced by the statistics of Freedom Finance Life (sales over the past year increased by several times). Besides, in March 2020, the S&P Global Ratings agency assigned Freedom Finance Life a credit rating and financial stability rating of the insurance company at the level of “B/kzBBB-” with a forecast for further development stability. And this, in turn, is an important advantage for customers who conclude long-term insurance agreements.

Photo: Freedom Finance Life Press Service

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