The most widespread savings instrument in our country is a bank deposit. Some Kazakhstanis choose mutual investment funds, purchase securities, and just few people know about endowment life insurance (endowment), the most reliable and profitable product on the financial market.
The conditions for depositors are the same in most banks of the country. The annual rate does not exceed 13%. And in USD it is no more than 2%. However, the bank's client has no access to his own funds for several years. If a person wants to withdraw money, he will either lose interest or it will be lower than inflation.
Investing in securities and mutual funds brings more return compared to bank deposits. There are risks, however, as stock or bond value is volatile. As a result, the client is risking his own money.
Endowment life insurance
So far, endowment is underestimated by Kazakhstani people, although such insurance has first appeared in our country back in 2001. “Endowment life insurance is a product that combines insurance and investment, i.e. by concluding an endowment contract, the client can insure his health and life from unexpected situations, and save money at the same time. Perhaps, this is the main difference from the classic life insurance products,” explains Azamat Yerdessov, the Board Chairman of Freedom Finance Life.
Insurers protect their clients from such unpredictable events as accident, disability, illness, and even death. “Financial support in these cases is complicated by the fact that the need for money cannot be determined in advance. The presence of an insurance component is the main value of LIC products, since the client can count on monetary compensation in case of an insured event,” explains Oksana Radchenko, the Board Chairman of Halyk-Life.
Endowment life insurance has been an important tool for life and health protection, as well as financial planning for many years in developed countries. For example, the annual volume of insurance premiums in Europe was more than 1.2 trillion euros before the pandemic, of which life insurance accounted for over 60%. “This sector is developing quite actively in Kazakhstan showing an average growth rate of up to 30% per year, but in comparison with Russia, our market growth is four times lower,” emphasizes Kairat Chegebayev, the Board Chairman of life insurance company Nomad Life.
The inflow of funds in life insurance companies is increasing from year to year in our country, however. “This trend of recent years can be partly explained by active unsecured bank lending, in which the borrower’s life and health is insured. However, accumulative life insurance is slowly but steadily gaining momentum," says Gulzhan Dzhaksymbetova, the Board Chairman of Centras Kommesk Life.
People in Kazakhstan started trusting insurers more. After all, this market is almost thirty years old. “Over the years, it has been developing in terms of quality, the infrastructure has been created, best business practices are being improved from increasing the client base to shifting the focus to loyalty, service and quality,” Gulzhan Dzhaksymbetova believes.
To attract people, Kazakhstani insurers offer clients additional options in the form of insurance coverage in case of disability: insurance in case of injuries, hospitalization, temporary and permanent disability, as well as critical illness diagnosis. As a rule, the customers conclude contracts for long periods, 10 years or more, future payments are formed at the expense of periodic contributions. “Insurance policies usually contribute to the profits of insurance organizations. This means that the amount of future payments increases due to the investment activities of the company. More than one hundred thousand Kazakhstani families are the users of such programs today,” the Nomad Life executive cites statistics.
In the event of death of the insured, the first degree relatives receive the entire insured amount from the insurer, even if the client has managed to pay only a few insurance premiums. “For example, even if only the first monthly insurance premium was paid in the amount of 10 thousand tenge, and the client was insured for 1.2 million tenge for a period of 10 years, the payment would still be 1.2 million. This is the main protective function of insurance contracts", explains the details the Board Chairman of Halyk-Life Oksana Radchenko.
“If nothing happens to the client, the insurer pays the accumulated amount together with the investment return at the end of the contract,” adds Azamat Yerdessov.
Foreign currency insurance products
The first foreign exchange product of endowment life insurance was launched on the Kazakhstani market in 2018. “The product is a good alternative to bank deposits. For example, it is the rate of return: three to four times higher than what STBs can offer their clients on foreign currency deposits, as well as number of additional options, such as insurance coverage, legal advantages, the possibility of obtaining concessional loans and much more,” says the Nomad Life Chairman of the Board.
Insurers, however, guarantee not only high interest rates. “Please note, that a client can pay a fee, and in a few years receive a payment with indexation at a new rate. Besides, our products do not need to be declared and they cannot be arrested, for example, for the loan non-payment,” emphasizes the Board Chairman of Freedom Finance Life.
With life insurance, you can easily save up for an apartment or child's education. “While parents are saving, they are protected from insurance claims. Therefore, if something happens, the child will have the opportunity to study anyway, even if the parents do not have time to accumulate the required amount,” added Azamat Yerdessov.
The investment products will appear on the life insurance market soon, the entire regulatory framework for the implementation of Unit Linked has been prepared by the regulator. “The essence of Unit Linked is as follows: when concluding a contract, the client makes a large one-time contribution, which the insurer invests. This allows the insured to receive investment return and avoid losses," the Halyk-Life executive clarifies.
The policyholder can choose his own investment strategy from the options offered by the LIC. “The contract term may vary from five to twenty years, - says the Board Chairman of Centras Kommesk Life. - At the end of the contract, the insured receives capital in full or in the form of terminal allowances. I believe in great prospects because of the variety of products, as in the last three years alone, the market has almost doubled." The interlocutor emphasized that the products of life insurance companies are, first of all, tools of protection, therefore, insurance companies are investing in conservative instruments.
“In general, when choosing investment instruments, it is important to understand that an endowment or investment life insurance agreement is a long-term capital formation for future financial goals with insurance coverage for the entire accumulation period, and they are designed primarily for those people who are considering long-term financial planning," concluded the Board Chairman of Halyk-Life.
Photos are from open sources.
