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Financial supervision authority informed about new life insurance products

New products of the life insurance market are designed to improve public confidence in the financial sector and increase social protection of Kazakhstanis. This statement was made by the Deputy Chairman of the Agency of the Republic of Kazakhstan for regulation and development of the financial market (ARDFM) Mariya Khadzhiyeva during an online briefing.
Financial supervision authority informed about new life insurance products

Educational insurance plans

The State Educational Savings System (SESS) enables any citizen of the country to open an educational savings deposit in his own name or in the name of his child, which in the future can be used to pay for vocational and higher education both in Kazakhstan and abroad.

Let us briefly remind you the project scheme:

The bank's interest is accrued on the educational deposit (up to 10%) plus the state premium of 5% or 7%.

The state premium is accrued annually for the entire deposit amount, including the bank remuneration, but not more than 100 MCI per year:

- 7% for priority categories: orphans, children left without parental care, the disabled, children from large families and from low-income families;

- 5% for other categories of the population of the Republic of Kazakhstan.

“If we compare banking and insurance educational products, unlike banks, insurance companies provide an additional option, insurance coverage. In the event of parent’s death or disability, the child is paid for the planned education, regardless of how much the parent managed to accumulate. This product is guaranteed by the Insurance Payments Guarantee Fund. As you know, a bank deposit is guaranteed for an amount not exceeding 10 million tenge, while an insurance product is guaranteed for the entire amount even if it exceeds 10 million tenge,” explained Mariya Khadzhiyeva, the ARDFM Deputy Chairman.

Educational life insurance guarantees an annual state premium in the amount of 5% or 7% on the amount of accumulation under the insurance agreement.

“The term and the down payment are not limited by law. When receiving a grant, the insured has the right to withdraw savings or reissue insurance for another child,” the speaker noted.

Marriage annuity

According to the ARDFM calculations, 25,000 Kazakhstanis can purchase marriage annuity at present. “This is the number of people whose sufficiency amount exceeds the minimum level established by law. They can combine their savings in UAPF with ones of close relatives or spouses. We expect this option to be in demand, as it allows create pension plans for each of the retirement annuity participants, and the combined savings of spouses guarantee them lifelong payments,” commented Mariya Khadzhiyeva.

One of the first questions at the press conference was about the division of the joint annuity in case of divorce. “A life insurance company initially draws up an individual schedule for each participant in a joint annuity, that is, the annuity is not divided during divorce. It is the same if one of them is leaving for permanent residence for another country; this spouse receives the redemption amount after applying and submitting the relevant documents. The contract will continue to operate for the second spouse,” Mariya Khadzhiyeva specified.

  • The married couple, 55-year-old husband and wife have pension savings of 10 million tenge and 8 million tenge, respectively. The minimum cost of a retirement annuity with a monthly payment of 70% of the subsistence minimum (26,173 tenge in 2022) for a husband is 7.4 million tenge, for a wife - 9.2 million tenge. In this example the amount of wife's savings is insufficient to conclude an individual retirement annuity agreement. By pooling the savings and concluding a joint pension annuity agreement with insurance premium of 18 million tenge, each spouse will be able to receive lifetime monthly payments in the amount of 28,430 tenge, taking into account the annual indexation of subsequent payments.

“The pension annuity agreement has huge advantages. The first is the possibility of receiving payments from the insurance organization for life, regardless of the amount of pension savings of the spouses transferred from the UAPF. This is a sufficient addition to the PAYG pension for those retirees who receive pension today, and a sufficient increase for those who will receive a minimum state-guaranteed pension, which will be provided for by law. I would like to point out that UAPF pays money only to the level of their exhaustion in the pension account,” said the ARDFM Deputy Chairman.

Besides, the new amendments give Kazakhstanis an additional opportunity to withdraw funds from their account in the UAPF. “Up until 2021, it was not possible to make changes to the agreement, including reducing the payment sizes, when concluding a retirement annuity (RA) agreement. With the change current legislation, the RA client has this opportunity: a person can transfer the difference between the old and new contract to the UAPF and use all the pension savings for alternative needs (purchase of real estate, mortgage, medical treatment),” Yerlan Burabayev shared, the Managing Director of the Financial Institutions’ Association of Kazakhstan.

Approximate calculation:

A 55-year-old man has previously signed a RA contract worth 11 million tenge. Now he can amend the agreement, reduce the amount of payments, and the cost of the RA will be 7 million tenge. The redemption amount will be 10 million tenge, and this difference (3 million) can be transferred to the UAPF and used to buy housing or medical treatment.

  • The consumers of financial services have to be sure that their interests and property rights are protected by the state. There is a system of guaranteeing insurance payments in our country to increase confidence in life insurance. “The key element of the guarantee system in our country is the Insurance Payments Guarantee Fund (IPGF). This organization protects the rights and interests of insurance policy holders. According to new law, consumers will receive insurance payments from the fund immediately after the ARDFM’s decision, without waiting for a court decision on liquidation of insurance company. This norm was introduced in order to have a continuous system of insurance payments in the country,” concluded Mariya Khadzhiyeva, the ARDFM Deputy Chairman.

In case of the insurer’s bankruptcy, the IPGF assumes obligations to an individual (and on certain types of insurance to legal entities). The future payment amount is not limited, unlike the Deposit Guarantee Fund, which pays out to depositors after the bank bankruptcy no more than 10 million tenge.

Let us remind that IPGF was established in 2003. Today its shareholders are 26 insurance organizations. The guarantee reserves of the Fund are 13.5 billion tenge. From the date of its creation, the IPGF has fulfilled obligations of six liquidated insurance companies in the amount of over 1.2 billion tenge.

Photos are from open sources.

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