Insurance companies offer to create initial capital for children with the help of universal life insurance for benefit of child. “A parent, guardian or relative enters into such an insurance agreement and names the child as the beneficiary. The contract consists of two components: funded and insurance. While the contract is valid, the insurance coverage made up from the parents’ contributions and income received from the insurer's investments is accumulated on its account. Upon the insurance term expiry the child receives the insurance coverage and interest on investments,” explains Oksana Radchenko, the Board Chairman of Halyk-Life.
The parents indicate the moment of payment in the contract. The contract is usually concluded for a long term: from 10 to 18 years, and it is possible to accumulate several million tenge for this period. “Children's universal life insurance provides a number of such benefits as protection of life of the child and parents, as well as the financial future of the child within the framework of one policy, - emphasizes Gulzhan Dzhaksymbetova, the Board Chairman of Centras Kommesk Life. – As savings security is very important in the face of growing inflation and difficult economic situation.”
“The insurance element here is to keep the coverage amount for the child regardless of what happens to his parents over these 10-18 years, since the contract specifies the cases upon the occurrence of which the child will be guaranteed to receive the insurance compensation within the period established by the contract", - continues the Halyk-Life executive.
The Board Chairman of Centras Kommesk Life recalls that this product has several more advantages: “The insurance payout cannot be divided in case of property disputes. Funds allocated under the program cannot be confiscated or seized by court decision."
Terms of life insurance for benefit of child
Oksana Radchenko believes: “Such insurance is a financial cushion for the future and relevant for young married couples and single parents, as they bear a much greater responsibility - not only for themselves, but their children as well. Even grandparents sometimes enter into endowment insurance contracts. Therefore, an insurance policy often becomes a good opportunity to arrange for the child's future and pass the savings to him personally."
The client concludes an agreement with the insurer and makes contributions from 5000 tenge per month throughout the entire period. “The maximum coverage amount is usually 10 annual salaries. There are endowment schemes where additional income from savings is accrued from the third year of insurance. And if, for some reason, the client is unable to accumulate the necessary amount by the specified date in case of insured event, the LIC will make a payment,” says Azamat Yerdessov, the Chairman of Freedom Finance Life.
Halyk-Life has been analyzing life insurance contracts for benefit of children and come to the conclusion: most often such contracts are concluded for benefit of children aged 3 to 8 years. “77% of parents sign contracts for 15 years and 11% of parents - for 10 years. It is noteworthy that 82% of such policies are issued by women, while men account for only 18%. Women insure themselves for benefit of children in 91% of cases, men - in 81%,” Oksana Radchenko, the Board Chairman of Halyk-Life, cites statistics. She adds that most often parents conclude contracts at a fairly "conscious" age of 30-40 years; the share of such customers is 43%, and they save for such contracts on average about 116 thousand tenge per year.
Bank deposit or insurance policy
When choosing any financial product, one needs to determine the goal of savings, if it is long-term, then life insurance will outweigh the scales. “There may be questions and concerns about whether inflation takes up my savings within 5 or 10 years. LICs offer protection of savings from fluctuations in the exchange rate and guarantee profitability higher than bank deposits. The insurance premium is paid by the client in tenge, which is accounted for in foreign currency at the current rate (dollars, euros). In case of insured event or at the end of insurance term, the insurance payout is made at the current rate,” emphasizes the Centras Kommesk Life executive.
“Savings insurance schemes are an alternative to bank deposits. It is worth to make a choice in their favor if the goal of savings is to provide for the future of the client and his children, - explains the Board Chairman of Nomad Life Kairat Chegebayev. - The minimum amount to be received by the child is usually indicated at the contract conclusion, and if there is a condition for participation in the insurer's profits, the amount will increase depending on income distribution. The insurer assumes the obligation to pay the amount in full upon the occurrence of an insured event, regardless of the number of insurance premiums made."
Life insurance companies invest in long-term instruments.
“Having received insurance premiums from clients LICs form insurance reserves that are invested in the stock market. Insurers do not grant loans and put their clients' funds at risk. They invest in long-term, highly rated securities,” emphasizes the Nomad Life executive.
The insurance policy provides additional options. Clients can participate in the distribution of the insurer's dividends and enjoy tax incentives and legal privileges. “Insurers, unlike other participants in the financial market (banks and mutual funds), do not charge fees for account maintenance or asset management but only take a percent of premiums paid. For the client this means that the longer the insurance program, the more beneficial it is in comparison with alternatives,” says Gulzhan Dzhaksymbetova.
How to choose a policy
When concluding a contract, insurers recommend paying attention to such terms as the cost of each insurance coverage included in the policy, LIC's obligations to pay, definition of the insured event, and payments in case of early termination of the contract. After clearing all the ins and outs, a person can choose a product. “When choosing a LIC, the most important parameters are the company's stable financial performance and reputation, a responsive approach to customer requests, the level of competence of its representatives, access to representatives in the region, and compliance with the requirements of the supervisory authority,” says Kairat Chegebyaev.
Since insurers have obligations toward their clients, the government strictly controls their work. “If the LIC meets the requirements of the supervisory authorities without claims from them, the risks are minimal. Besides, when choosing an insurance organization, it is necessary to study its financial performance, rating, effectiveness of investment activities, range of the sales network, number of customers, and good reviews from them”, emphasizes the Board Chairman of Nomad Life.
Azamat Yerdessov advises to carefully study the life insurance agreement before signing it. “The term of savings/insurance is determined by the client with respect to child’s age, and the maximum insurance coverage should be determined with reference to the cost of education. One should also mind what risks are included in the insurance program and whether the program meets the investment goals that the parent/guardian sets for himself,” notes the Freedom Finance Life executive.
The interviewee believes that one of the reliability factors of the LIC is cooperation with international reinsurance companies. “Reinsurance of risks in the world's largest reinsurance companies is an additional guarantee of the domestic insurer’s reliability. Reinsurance allows LICs to take on client risks that would be too great for one entity. Sharing risks partly reduces the profits of insurers, but it is another guarantee for our clients,” the source concluded.