Endowment life insurance and investment component

Endowment life insurance – a serious alternative to such financial instruments designed to save you money as a deposit or investment fund.

However, despite the optimism of the insurers themselves, which forced senior representatives of the market talk about the great prospects of insurance savings in the first post-crisis years, things went a little differently.

Life Insurance during the crisis significantly affected due to the uncertain economic outlook and the decline in effective demand. Last year in the CIS for the life insurance market have collected almost 20% less than a year earlier. Life insurance payments fell by 11%.

At the same time, the Ukrainian Life Insurance Company in 2009 collected a total of about 850 million USD of insurance premiums. The volume of insurance payments the first year compared with the pre-crisis period has decreased by 30%. True, in general, more than 60% of all revenues last year amounted to award it to life insurance, and the share to terminate the contract is less than 5%, while the dissolution characteristic of the contracts first and second years.

The main problem for the life insurance market in 2010 will be the lack of customer confidence in long-term cumulative financial products.

As history shows the development of insurance savings since 1998, after the crisis must be at least 5 years of sustained growth of the financial system, before consumer confidence will return to it at a fairly high level. So in the next few years should not expect the explosive growth of life insurance.

Experts note that 2010 will be the year of the correct relationship between banks and insurance companies, life insurance, as well as approaches to customer service and building products. In short, insurers will do everything that we brought them the money. But is it worth?

When people talk about savings insurance, keep in mind, as a rule, the cumulative life insurance and pension insurance. The latter type until common in Ukraine is relatively weak, though officials are actively working to change the situation.

Quite another matter – life insurance. This type includes all types of insurance, where the object of insurance in favor of human life. But since in practice it is impossible to determine the value of human life, the financial company focuses on the client’s income. It turns out that the object of protection appears not so much life and health insurer, as his income. According to the theory, the average amount of insurance coverage varies from 3 to 10 annual income clients. However, there are more exotic proposals.

Such insurance contracts are concluded for a period of not less than one year. It should be borne in mind that distinguish risky and cumulative life insurance. At risk (classical) insurance client money goes to cover the risk and at the end of term insurance do not come back, so more about this form of insurance, we think this material will not.

Another thing – life insurance with the accumulation. This type of insurance combines the two functions at once: the savings and risky. The classic example – the mixed life insurance and endowment. That same insurance “to adulthood, which, as says the Russian Federal Statistics Service, just before the collapse of the Soviet state insurance, and the whole Union, to seize on every fifth family.

Such insurance is a combination of investment fund and risk insurance. Part of the client’s money goes to cover insurance risks, the other embedded in low-income, but reliable businesses, and brings investment interest. In the case of survival, at the end of term insurance client receives the invested money back with interest.

Moreover, in modern practice, such as Britain and the U.S., the company will pay for the risks do not be deducted from the funded part.

Among the risks that are included in the life insurance contract, there is accident insurance, a disability from the disease (eg cancer).

As a result, the insurer part with the money when the policyholder reaches a certain age, fell ill or died.

To the facts “for” could be considered a guaranteed minimum income, it is now 4%. Everything else depends on the effectiveness of the investment strategy of the company. On average over the past year have provided clients with insurers yield at 12-16% annually in local currency. Articulate the return on the company’s prospects are not allowed, and in informal conversations forecasts completely contradictory to the “basic” 4% to 20-25% yield.

Under the law, briefcases “layfovyh” Insurers may consist of deposits of up to 50% of the bonds – up to 40% of the shares – up to 30% of government bonds – up to 10%. Given that even the most reliable paper in the stock market, companies tend to invest less than 5%, it is not clear on what insurers can increase their profitability. Because it can be assumed that the total yield at the end of the year in UAH will differ little from last year – the same 10-15%.

But do not forget that this is the average for the market, and profitability of the companies – the work of this particular company. Naturally, not everyone, even those earning 15-16% per annum. Moreover, among the market leaders are companies that are higher by 5-8% a year do not rise, justifying the absolute safety of their investments. Do not forget about the possible bankruptcy of the company, the insurance market there is no fund to guarantee deposits of individuals. It turns out that the policy even provides insurance protection against death of the insured does not justify the difference in yield with bank deposit. And if we add the inflation index for the period of “investment”, the result is generally poor.

Now the most curious. Frequency of payment of contributions. Usually the decision about how to pay, he accepts the policyholder. But there is one nasty subtlety. Themselves, insurers offer to pay money every year. Otherwise, when the monthly payments to pay the total amount of annual premium for insurance increased by a percentage – from 3 to 5.

By the way, if you want the final index return (to increase the sum insured on the size of the inflation index), which is often recommended to insurers themselves, in practice the premium client simply increases in this index.

And if suddenly the client decides to terminate the contract, such as in the case of deposit? Not so fast. Nearly always, the redemption amount (the amount of early termination of insurance) is formed, a kind of, after three years of the contract, and termination of the policy before the agreed period of time is fraught with complete loss of investment.

But there’s more unpleasant surprises. The redemption amount can not guarantee the return of all contributions paid. The later terminated policy, the most you can get your hands on, but get 100% is possible only after the stipulated in the contract. A number of companies have adopted the policy fine print to write that terminate the contract reimburses the policyholder is also the cost of doing business (from 3-10%), settlement and cash services, etc.

Yes, do not forget about the tax, as in the case of investment income, and in early its dissolution. Note from bank deposits was so unpleasant moment.

But that’s not all. It is worth to mention additional costs if you delay the payment of insurance. Insurers give customers a grace period (usually about a month), then reduces the FCCU (reduces) the sum insured under the contract. If the delay in payments are insured up to the formation of the redemption amount, insurance coverage generally may be reduced to zero.

Apparently, to date, cumulative insurance may be interesting only to those who are critically important to diversify their investment flows, or those who seriously need to protect the lives and health. Otherwise we recommend to wait for stabilization of the macroeconomic situation, not only in the country, but in the region, as well as more democratic conditions of the insurance companies themselves.

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