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Why are the universal life insurance programs profitable?

Life insurance is a mandatory part of any European and American family spending. The total number of life insurance companies in the European Union in 2017 amounted to 5.16 trillion US dollars. According to Europeans if a person has no life insurance policy, he is practically a bankrupt. Kazakhstani authorities began to create conditions for the life insurance development.
Why are the universal life insurance programs profitable?

How it works

The scheme looks quite simple: a policyholder (the one who concludes the contract) chooses the frequency of insurance payments himself: once a year, quarter or six months, or once a month. There is no standard tariff; the amount depends on the insured’s age, sex and state of health, as well as the term of the contract. And the insurance company invests these funds in such a way as to preserve and increase them.

If it is a large amount contract, the insurer will most definitely ask the client to be medically examined to make sure that at the time the contract signing he is not suffering from serious illnesses. The presence of the latter may seriously affect the cost of insurance or the company may refuse to conclude a contract.

The life policy allows not only to accumulate the necessary amount, but also protects against the occurrence of some extraordinary events such as death, trauma, disability, critical illness (for example, oncology). Each of these risks is specified in the contract and involves the receipt of a certain size of insurance payment. In case of disability, for instance, the insured, if, of course, he has chosen this additional option to the main contract, is paid by the company up to 100% of the insurance coverage amount (depending on the disability degree).

In most cases, insurers offer clients combined programs. They allow both to save money and get protection from the risks of death or critical illnesses. Universal life insurance contracts are rarely short-term, as a rule, companies insure customers for 5-10 years or more.

Due to the fact that the universal insurance programs in Kazakhstan were equated to the deposits in terms of taxes or rather exemption from double taxation, life insurance companies had the opportunity to develop these areas and offer customers favorable investment terms.

It is well known that today banks' rates on deposits in US dollars range from 0.1% to 0.5%. In life insurance companies have begun to offer customers the products with higher returns in US dollars.

We would like to present you an overview of some products offered today by our LICs (information taken from open sources).

The advantage of life insurance is the possibility to accumulate the necessary amount for a child’s education at the university or the purchase of real estate by his majority age. It is also financial protection from unforeseen circumstances and the possibility of participating in the company's profits, as well as the opportunity to get a loan under an existing insurance contract, Halyk-Life JSC notes. Among the program advantages is the opportunity to increase the accumulated amount by distributing part of Halyk-Life’s profit to the client’s account. It is also possible to get a loan as of third year of insurance. In the event of disability, the paid premiums and insurance coverage are paid. The company notes the possibility of paying insurance premiums through the payment systems of JSC Halyk Bank Kazakhstan. In the event of a client’s death a one-time financial aid is provided. Insurance coverage, as in all life insurance policies, is valid around the world 24 hours a day.

Nomad Gold by JSC Life Insurance Company Nomad Life

The rate on the accumulative product Nomad Gold by this insurance company is up to 3.26% in US dollars, depending on the insurance period. It is fixed for the entire contract term. The longer the period, the higher is the yield on the instrument. Term of insurance is from 3 to 10 years.

It is also important that life insurance premiums are protected from confiscation or third party claims in a property dispute, they are not subject to arrest, division between spouses, declaration. Besides, you accumulate and multiply this money for specific purposes. Your savings are tax free. The information about the funds invested by you and other contract terms are also confidential.

Besides, the redemption amount for this product is already formed in the first year, so if necessary, the customer can terminate the contract and receive fully paid contributions as of second year. And insurers do not recommend that as the client loses the opportunity to receive expected income if he terminates the contract.

The money and interest you have invested for the entire period in case of adverse conditions, including your death, can in advance be divided between your heirs assigned by you. The insurance payment is made to the person specified in the contract within 10 days. Registration of the rights of inheritance is not required.

You can also get a loan in tenge at a low rate secured by a policy.

Besides, the accumulation insurance product, in addition to a good source of investment, provides life insurance coverage, which operates 24/7 around the world.

Any person can be insured after the simplified underwriting procedure. Age varies. For example, according to Invest Life, another Nomad Life cumulative program, clients at the age from 7 to 63 years old at the time of the conclusion of the contract can be insured. Here the term of insurance is from 7 years and above.

JSC LIC Standard Life

Cumulative insurance programs by the company provide for periods from 5 to 35 years. The minimum annual insurance premium is not less than 60 000 tenge; semi-annual - 30 000 tenge, quarterly - 20 000 tenge.

The insurance payment is made both in case of survival until the policy expiration, and in case of death for any reason during the insurance contract term. This is 100% of the insurance coverage specified in the insurance contract plus bonus coverage in case of accrual. More information is given in the individual consultation.

JSC LIC Freedom Finance Life

The company also offers a whole line of saving insurance products, including: Freedom Kids. A child under the age of 15 is insured. The minimum payment is 5,000 tenge per month. The term of savings is from 5 years. In addition to accumulation of funds, throughout the entire insurance policy term you and your child are protected from accidents. Starting from the third insurance year an additional income from savings is accrued due to the dividends distribution and participation in the company's profits. There is also an opportunity to get a loan. Contributions can be paid on monthly, quarterly, semi-annually, annually, or lump sum basis. Protection against 10 additional risks can be added to the standard policy, including critical illness insurance.

Similar terms are for adults under the Freedom Future program. And the Freedom Money program, among other things, involves the payment of the accumulated amount of the completed program with indexation to the US dollar. The Freedom Education program includes the accumulation of the amount for children’s education, and also protects you and your child from an accident and loss of your ability to work as a parent.

Let us note that, in addition to the above companies, the remaining Kazakhstani LICs also offer savings insurance programs, including JSC LIC State Annuity Company. More detailed information can be obtained on their official sites, as well as by phone and in offices.

Early termination of contract

The policyholder may receive a part of savings from the investment income earlier than specified in the contract. But in this case, the company will return not all the amount, but only the redemption amount (accumulated capital minus taxes and administrative expenses). Its size depends on how long the contract was valid.

The money received from the client in the first year often is paid for intermediary services, agent, and broker commission. In the second year, a significant part of the insurance payment is sent to the death, disability or critical illness reserve under a risk life insurance policy. Accumulations begin to form only from the third year, plus the company invests this money and assesses income annually.

For customers, all these mechanisms are often incomprehensible. “Not only the company did not increase my savings, but they even declined. When I tried to terminate the contract, I was returned several times less from what I had paid”. This is a typical complaint from a customer who decides to terminate a contract in the first three years.

In order to avoid this situation you should read your contract carefully. It must stipulate the exact redemption amount, which the insured can count on each policy year. And remember, insurance payments are reserve ration. Do not expect that this money can be withdrawn any time to pay for vacation, renovation or other urgent expenses. This is your insurance in case of death or expensive treatment.

Terms of the contract with the insurer can be revised, for example, to reduce the insurance coverage and thereby, reduce the size of insurance premiums.

You can also pay by installments (twice a year or quarterly). However, due to the commission their size will increase. You can also transfer the contract into non-premium or fully paid, that is, the insured ceases to pay premiums, and the insurer ceases to fulfill his obligations under the life insurance contract in case of death.

What is worth special attention when concluding a contract 

- The list of insured persons, beneficiaries for each insured risk, size of the policy, currency of insurance (tenge, US dollar) and insurance tariff.

- The size of redemption amounts for each year of the life insurance contract in absolute value or as a percentage of the insurance coverage for survival risk or insurance premiums paid (usually indicated in the annex to the contract)

- The full list of documents for obtaining the redemption amount and its payment terms

- Insurer’s obligations to provide the policyholder (the insured, beneficiary) with information on the amounts (bonuses) which the year-end amount of the insurance coverage or annuity was increased for. Their size depends on the insurance company’s financial results.


Photos are from open sources

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