bs-preloader__icon
ru kz en

Endowment and investment life insurance simply put

When looking for information about long-term investing or life insurance people often come across the phrase "universal life insurance" (ULI) and "investment life insurance" (ILI). Kazakhstanis have the opportunity to invest in unit-linked or investment insurance this year. We will help you understand the terms and meaning of the services that insurers provide in this article.
Endowment and investment life insurance simply put

Classic life insurance assumes that a person enters into a contract and pays a small premium. If an insured event occurs, he receives compensation in a much larger amount, but if nothing bad happened, the money remains in the insurance company.

Accumulation and investment insurance is another matter. You pay a large amount but get the money back with the profit. “As a financial instrument both products serve to replace the income of the insured person in the family in the event of his untimely death or the receipt of the accumulated amount based on the results of the validity period, i.e. payment is made in any case. The client can add heirs to the main policy by expanding the coverage and including benefits in the event of an accident or critical illness, etc.,” emphasizes Gulzhan Dzhaksymbetova, the Board Chairman of Centras Kommesk Life.

Univesal life insurance (endowment)

The endowment policy consists of two components: coverage and savings. “This product is designed in such a way that contributions can be paid in installments (for example, monthly or even annually), saving up for an important financial goal, - says Zhanar Zhubaniyazova, the Board Chairman of Halyk-Life. - The client’s life is insured for the entire insured amount from the first installment, and in case of insured event, the insurance company will make the insurance payout”.

The advantages of endowment insurance are that in addition to life insurance and fund accumulation, the client receives a guaranteed income and dividends from participation in the insurer's profits, the distribution of which increases the insured amount.

“Endowment is a kind of financial reserve for any unforeseen event, for example, the loss of a breadwinner, - explains the Board Chairman of Centras Kommesk Life. - Additional savings will not be redundant to ensure a decent life in retirement, education for children, home purchase or a certain date: wedding, majority, etc. Endowment can also be an alternative to a bank deposit."

Universal life insurance offers products with fixed income. “These insurance products are low-risk, they provide guaranteed maturity payments, i.e. the insurance company takes on investment risk by investing conservatively,” explains Ramay Kurbangaliyev, director of the sales and regional development department at Nomad Life.

By concluding an endowment contract, the client can insure health and life from unexpected situations and save money for certain purposes. The insurance premium is paid by the client in tenge, which is accounted for in foreign currency at the current rate. “It is also possible to save money for 3 years and more without fear of currency depreciation. Upon the expiration of the term of the agreement, payments are made with indexation to the exchange rate. Unlike bank deposits with the annual interest rate on foreign currency deposits of only 1%, the rate on these programs can be up to 4%. In addition, endowment plan allows save in the long term,” the Freedom Finance Life press service defines.

Investment life insurance

ILI presents a product where the client takes over the management of investments in various areas offered by the insurance company. “ILI products are tied to the results of stock markets and, potentially, will bring higher returns depending on market environment and, accordingly, the client assumes risks as well. This is how they operate: part of the insurance premium paid by the client goes to life insurance, and the rest is invested on the market in investment portfolios of the client's choice depending on his appetite for risk,” notes the sales and regional development department director of Nomad Life.

Unit-linked is a complex investment product, and life insurance is an additional feature in it. “With a unit-linked agreement a client will be able to invest with expectation of high returns and have insurance coverage against unforeseen situations,” they say in Freedom Finance Life.

The policyholder, having concluded the contract, chooses the investment strategy from the options offered by the LIC, and the insurer directs part of the insurance premiums to the investment portfolio chosen by the client, and another part of the insurance premium for endowment. “At the end of the contract, the policyholder receives capital in full or in the form of periodic payments. Financial planning under a life insurance policy entails two important aspects: creating savings from the money invested and providing material coverage in case of unforeseen circumstances,” emphasizes the Board Chairman of Centras Kommesk Life.

Another important unit-linked difference is its potential yield. “If the endowment programs provide for a guaranteed profitability of up to 5%, as well as the possibility of obtaining additional profitability (3-4% in average) due to the policy participation in the profits of the insurance company, then under investment life insurance programs the profitability is not guaranteed, but depends solely on those investment instruments which the client's assets were invested in under the insurance contract.”

“Therefore, when choosing between these products, the client should look at his financial capabilities and the goals he sets for himself,” the Halyk-Life executive clarifies.

The main advantage of unit-linked is insurance with participation in investments with diversified portfolios or mutual funds. Another benefit of this product is that there is no need to open a brokerage account when investing; it is enough to conclude the agreement with a LIC.

What is worth special attention when buying ULI and ILI?

When choosing an insurance product, first of all, it is necessary to focus on the following conditions:

- The permissible age of the policyholder and insured person;

- The amount of insurance premiums;

- The possibility to choose periodicity of premium payments;

- What risks are covered under the selected insurance program.

The customer should also pay attention to the chosen life insurance company, namely, its service and payout guarantees in case of an insured event or upon the contract expiration.

The reliability of the LIC is characterized by several factors. The main ones are as follows: a license from an authorized body, credit ratings by world rating agencies, and reinsurance in the world's largest reinsurance companies.

Why is it important to invest in life insurance during the pandemic?

During the pandemic, the decision to conclude an insurance contract seems more logical, since we face the risks that threaten our lives and health on a daily basis, but the statement that it is important to buy investment or universal life insurance during a pandemic would be wrong. “The sooner you decide to purchase an insurance policy, the better. Life insurance rates for each of us only increase with age,” reminds Ramay Kurbangaliyev. The interlocutor believes that by postponing the decision to conclude an endowment or investment life insurance contract for later, we are shortening the term of our future investment maneuvers. It would be more correct, for example, to start forming savings for your child's higher education when he is only 5 years old, and not 15. In this case, insurance costs will be lower and the funds will work for 10 years longer.

Such policies have another undoubted perk. “Given that life insurance programs have extensive insurance coverage, one of which is to cover the risk of death for any reason, in case of illness or accident, many companies have provided for the payment of insurance compensation in the event of the death of the insured, including as a result of infection with the coronavirus COVID -19”, Zhanar Zhubaniyazova concludes.

Photos are from open sources.

Share
read also
Dollarization of deposits in Kazakhstan grew against increased currency sales by exchange offices
Dollarization of deposits in Kazakhstan grew against increased currency sales by exchange offices

The national currency weakening by 18% led to total tenge deposit base growth by 7.6%...

Benefits of Unit linked
Benefits of Unit linked

Unit linked has been operating in Western markets for several years. Based on it, a p...

Dina Urzhumova, an actuary: "Point estimate is zero information, this is a 100% error probability"
Dina Urzhumova, an actuary: "Point estimate is zero information, this is a 100% error probability"

Dina Urzhumova is an actuary, CFA and economist with extensive working experience, an...

The most interesting materials of the site you have in the mail! Subscribe to the newsletter.

ASK A QUESTION TO THE EXPERT
ASK A QUESTION TO THE EXPERT
Submit your application