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Why is it profitable for Kazakhstanis to save up for life insurance?

The total life insurance premiums in the insurance market in 2021 doubled in comparison with the previous year, this was mainly due to endowment life insurance and retirement annuity programs, as the interviewed experts told.
Why is it profitable for Kazakhstanis to save up for life insurance?

The Freedom Finance Life executive Azamat Yerdessov noted that the popularity of endowment products also increased due to amendments to the legislation adopted in January 2021. They relate to tax benefits for endowment life insurance programs.

The insured can now save up to 93 thousand tenge on taxes per year with an endowment agreement for three years or more. He may also not to pay tax for insurance benefits on endowment contracts and redemption amounts upon termination of the contract with the LIC. “For five months of this year, the total amount of premiums on retirement annuity has increased by 68% compared to 2020 and amounted to 62 billion tenge. Since January 2021, people have begun to more often conclude contracts on this product after changes in the pension system and occurrence of a deferred retirement annuity,” the expert said.

He cited data according to which, in 2021, the total life insurance premiums in the market doubled compared to last year and amounted to 47.7 billion tenge. Such rapid growth in the volume of insurance premiums was mainly due to the endowment life insurance programs and retirement annuity. “After devaluation in March, 2020, people began to conclude agreements on endowment programs with indexation to the dollar exchange rate more often. It is possible to secure savings from devaluation of tenge this way,” noted the Freedom Finance Life executive.

However, he advised Kazakhstanis, before concluding an agreement with an insurance company, to study all the conditions and pay attention to insurance premiums. Some programs require a one-time insurance premium, others - once a month, quarterly or annually. “The contracts on almost all endowment projects are concluded for a long term, from three years or more. They provide for an age limit for the insured, most often from two to 65 years,” Yerdessov noted.

Meanwhile, the Board Chairman of IC Centras Kommesk Life Gulzhan Dzhaksymbetova notes that there are several types of endowment, but they all differ in options and conditions. “For example, you can save up for the child’s education or issue a unit-linked investment life insurance, and it is also planned to introduce a joint retirement annuity. It involves the pooling of the savings of both spouses. Thus, the emphasis on innovative insurance products will become one of the main activities of life insurers in the near future,” she confirmed.

According to Dzhaksymbetova, mixed life insurance and annuity insurance are the most common in Kazakhstan today. Essentially, endowment allows accumulating the necessary amount over 5-20 years to achieve important goals. She notes that for the entire period of the contract, the client receives life and health insurance coverage from various risks: injuries, diseases, death, disability and incapacity for work as a result of an accident.

Dzhaksymbetova noted the following advantages of this instrument:

- The policyholder has the right to choose the beneficiary in an unforeseen situation;

- The savings cannot be claimed by third parties, for example, creditors, government (arrest, confiscation) or unwanted heirs;

- They are not subject to division upon divorce;

- Preferential taxation is provided under certain conditions, that is, the premiums under endowment insurance contracts are not subject to income tax. Insurance benefit is also not taxed when the contract term expires and the person takes his savings;

- Savings create a financial reserve by a certain date and provide insurance coverage in case of unforeseen incidents related to life and health.

And early termination of the contract is disadvantageous.

Andrey Dzheksembayev, acting chairman of the board of Halyk-Life, believes however, that clients should firstly realize what they are saving up for.  “One of endowment life insurance advantages is that a person of almost any age can choose an optimal program convenient both in terms of period and deposit size. When concluding an insurance contract, it is also very important to pay attention to the risks, what exactly is an insured event. If you are often on the road, the policy should cover death as a result of an accident, if you work at heights, you must have accident insurance,” he explained.

In addition, Dzheksembayev has noted that special attention should be paid to exceptions, that is, those cases when the insurance company is exempted from payment. “The most important thing, however, is to assess the reliability of the insurance company, which is characterized by a combination of several criteria: the financial condition of the insurance company, assets, insurance reserves, volume of insurance premiums and payments, investment portfolio structure, and reliability rating. The rating is assigned by reputable rating agencies, such as, for example, S&P, AM Best, Fitch and others, based on analysis of the company's performance indicators: solvency, financial stability, investment activities, etc. If the insurer has no rating, this is a pause for thought,” he emphasized.

In turn, the Nomad Life executive Kairat Chegebayev noticed an increase in the number of appeals to life insurance companies, since LICs are quite active in promoting the industry. Therefore, people who not only want to earn a good return on investment in foreign currency but also preserve their savings and insure their lives, become our clients. “Endowment life insurance and Unit-linked in particular, are the most popular insurance products in the world (up to 70% of all sales). Therefore, there is a room to grow. If we judge by GDP per capita, as well as access to investment instruments, both domestic and international, the market, according to modest expectations, may still grow by 300-400%. Besides, as of January 1, 2021, a tax incentive came into effect reducing the employee base on IIT. It has not yet had time to be realized to the proper extent, people are not aware yet. The potential is significant, - he said. - There are also sectoral projects, such as SESS (State Educational Savings System), to which it is planned to involve LICs, and joint retirement annuities designed to redistribute the pension savings of spouses. These reforms, if adopted, will also bring additional opportunities for the life insurance market development.”

Photos are from open sources.

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