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What is the return on endowment life insurance policies?

Most Kazakhstanis believe that life insurance is a policy for dangerous work. However, LICs have significantly expanded their product line in few years, they offer return comparable to deposits, and in some cases, the profit of insurers even exceeds the interest on deposits. We will talk about endowment life insurance products in this material.
What is the return on endowment life insurance policies?

When it comes to endowment life insurance products in national currency, the final rate of return depends on bonuses in the form of a proportional distribution of the company's profits, which hinge on the insurance organization’s efficiency and profitability for the reporting year. “As for savings products in foreign currency, the minimum annual return rate on them at the moment exceeds the percentage offered by banks on foreign currency deposits. Depending on the amount and term of the contract, endowment life insurance products in foreign currency guarantee an annual income from 2% to 4%, while similar banking products today offer 1% of the annual income,” explains Galym Amerkhodzhayev, the Chairman of the Board of LIC Standard Life.

The current rate of return on endowment insurance programs in foreign currency in our Company is the highest, even in comparison with dollar deposits in STBs. The guaranteed return on programs ranges from 2% to 4.1% in dollars, which exceeds the average return on classic instruments by 3-4 times. After all the main component of endowment life insurance policy is a financial security against unforeseen circumstances, which gives significant value to the accumulative instrument. “Inflation in Kazakhstan is now in the double-digit zone. Under these conditions, financial institutions cannot provide income in tenge, which will significantly exceed the price increase and bring real income to their customers. Therefore, we set ourselves the task of maximizing the return on our dollar product Zoloto Nomadov. In addition to a high dollar return, one should not forget about the main component - a life insurance policy is a financial security of loved ones from unforeseen circumstances, which gives significant value to the saving instrument,” says Yerlan Kambetbayev, the Board Chairman of LIC Nomad Life.

LIC Halyk-Life has several endowment insurance programs. The classic product is "Halyk-Kazyna" with a guaranteed return on investment of up to 3.52% per annum in foreign currency, which is paid at the end of the insurance period or in the form of compensation upon the occurrence of an insured event. “But do not disregard the most important thing in insurance products, insurance coverage, which minimizes financial damage to the insured person’s family and its members in case of his death or disability during the period of the insurance contract. The longer the accumulation period, the higher the profitability under the insurance contract. The mathematical compound interest law applies here, besides, it contributes to the financial discipline of clients, which provides a large insurance coverage with regular insurance premiums,” says Zhanar Zhubaniyazova, the Chairman of the Board of LIC Halyk-Life.

The “Sattі Omir” product has been developed for Centras Kommesk Life clients; it is a program of endowment life insurance with indexation and participation in profits. The currency of the insurance policy is tenge, indexation is pegged to the US dollar. The rate of return is up to 3.43% and is fixed for the entire insurance period. Thus, clients will receive guaranteed savings with a higher return than those on foreign currency deposits. Starting from the third year of the life insurance contract, the client additionally participates in the investment profit of the company.

“It is possible to get insured for a period from 3 to 15 years. Insurance payouts and redemption amounts are not subject to taxation. Insurance coverage for customers is valid worldwide. The product allows simultaneously provide insurance and financial security against the consequences of accidents and illnesses and protect your savings in case of fluctuations in the exchange rate. Plus, it is an effective financial planning tool that allows increase capital,” notes Oleg Khanin, the Deputy Chairman of the Board of LIC Centras Kommesk Life.


In February, LIC Eurasia released a new endowment life insurance product "Eurasia Daryn" within the framework of the state educational savings system (SESS). According to this product, every Kazakhstani citizen can independently save money for their children’s education with the government support. As part of SESS, in addition to 8% of investment return from insurance companies, the state will add another 5% per annum, and for a priority category of the population, for example, orphans, disabled people, children from large families - 7% per annum.

“For example, you are 35 and your child is 8 years old, then in 10 years you will be looking for a suitable educational institution for your child. If you now conclude a 10-year endowment insurance contract for 5 million tenge, at the end of the contract, the accumulated state bonus will be 1,790,000 tenge, and the payment receivable will be 6,790,000 tenge. Thus, return from the amount actually paid under the insurance contract and insurance coverage in case of insured event will be added to your contributions. In the event of the parent’s death or disability confirmation, the insurance company is obliged to pay the child a predetermined amount specified in the contract. The rate of return is guaranteed for the entire duration of the insurance contract,” emphasizes Gulmira Ubegaliyeva, the Board Chairman of LIC Eurasia.

Since the product has social significance, it is guaranteed by the IPGF. This is the particular advantage of insurance product in contrast to bank deposit. The Insurance Payments Guarantee Fund covers the full accumulated amount, while the Kazakhstan Deposit Insurance Fund only covers up to 20 million tenge. Insurance benefit in full and insurance premium up to 320 MCI are exempt from taxes.

How do insurers make money?

The work of life insurance companies is associated with long-term obligations, so the insurer’s credibility is a key factor for clients when choosing a financial institution.

One must bear in mind that insurance companies are full-fledged participants in the financial market. They invest the funds accumulated as part of their activities in various financial institutions trying to form their investment portfolio by choosing instruments with optimal return and reliability guarantee, including deposits, stocks, bonds, etc. “If a company maintains a stable volume of collected premiums and invests funds effectively, it has certain profit indicators at the end of the year. Thus, depending on the final annual profit ratio of the company, bonus return is accrued for clients who have endowment agreements in the national currency - the client directly participates in the company's profit and receives additional dividends from this,” Galym Amerkhodzhayev notes.

The minimum term of the contract also affects the profitability of endowment products. If the client undertakes not to withdraw his money under the contract from the insurance company for, let’s say, 10 years, the company invests the funds in long-term assets, selects appropriate instruments and plans a higher return. This explains the higher profitability of foreign exchange products compared to deposit counterparts.

“Credibility, financial stability, and solvency of life insurance companies are supported by the constant control of the regulator, which ensures the protection of interests of consumers of insurance services. Thus, life insurance companies must comply with prudential standards: the minimum charter capital, standards of adequacy of solvency margin, highly liquid assets and asset diversification,” emphasizes Oleg Khanin.

Due to the nature of LIC products, a more conservative investment strategy is more reasonable, which includes fixed income government debt securities, low default risk corporate debt securities, and equity securities of large companies.

Zhanar Zhubaniyazova believes the contemporary life insurance market offers many interesting products that can successfully compete with the usual financial instruments providing, however, much more advantages to customers: “Of course, the choice of a financial instrument or specific insurance product depends on the individual needs and capabilities of a person. It is very important to consult with specialists who can advise the best insurance option aimed at social protection and human well-being.”

Photos are from open sources.

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