- How endowment life insurance works
- Advantages and limitations
- Choosing a programme
- Early termination
- Insured event
How endowment insurance works
Endowment life insurance
Endowment life insurance is one of the most popular types of insurance and, one might say, a unique one. Only endowment life insurance allows you to get back the entire amount paid to the Insurance Company, together with the investment income earned.
You can gain confidence in yourself and in tomorrow only by taking full responsibility for your own health and life. By choosing endowment life insurance, you can protect yourself and your loved ones from any twists of fate. Moreover, this type of insurance allows you to save and grow your money as if you had placed it on a deposit.
Endowment life insurance is also a type of insurance with which you simultaneously insure your own life and your state of health and, in addition, accumulate a specific required sum of money by a chosen date.
To simplify, in terms of how it works, endowment life insurance resembles a combination of ordinary risk life insurance and a bank deposit.
That is, throughout the term of the contract you regularly pay the agreed amount, you are insured the whole time, and the funds in your account accumulate.
At the end of the insurance term, you receive the amount you have paid in, with interest. The total of the regular payments is known and precisely determined in advance. The guaranteed sum that you will receive when the contract expires is also known.
You will not receive less than this sum, but you may well receive more: that will be additional investment income.
Why you need endowment life insurance
Everyone has their own priorities for using the accumulated funds:
- paying for education,
- saving money for a particular date (for example, for a child's coming of age),
- ensuring a decent life in retirement,
- protection against unforeseen circumstances,
- caring for your children's future.
Endowment and term life insurance compared
| Criterion | Endowment insurance | Term insurance |
|---|---|---|
| Main purpose | Protection of life and building savings | Insurance protection for a chosen term |
| Contract term | Usually long | Determined by the client's needs |
| Payment on survival to maturity | Provided for by the contract | Usually not provided |
| Cost | Higher because of the savings component | Usually lower for a comparable sum insured |
| Early termination | A surrender value may be paid | Any refund depends on the contract terms |
| Who it suits | Those who need protection and planned savings | Those who need insurance protection without a savings goal |
How endowment life insurance works
Endowment life insurance is an interesting financial product that allows you to save money and insure yourself against possible risks at the same time. For example, a client concluded a contract with an insurance company for a guaranteed sum of 10 million tenge for a term of 20 years. Every year they must pay insurance premiums of about 500,000 tenge.
- If an insured event occurs (the client dies or becomes disabled), the company undertakes to pay the client or their relatives the entire contract sum (10 million tenge, in our case). It does not matter how many premiums the person had managed to pay.
- If the client dies as a result of an accident, the insurance payment consists of the sum insured, the premiums actually paid, a one-off financial assistance payment and insurance bonuses.
- If no insured event has occurred, then at the end of the contract term the client receives the guaranteed sum insured plus investment income (about 5% starting from the third year).
Insured events under endowment life insurance
Because endowment insurance is a combined product with both an insurance and a savings function, it should not be considered solely as a way of earning income. The contract may specify the following insured events, on which the insurance company is obliged to pay the client the contract sum.
1. Reaching a certain date. For example, on reaching retirement age, the client receives guaranteed accumulated payments in addition to the basic pension.
2. Death of the insured client during the premium payment period. When such an event occurs, the insured person's relatives receive the entire sum for which the contract was concluded, regardless of the number of premiums paid.
3. Disability and incapacity for work may also be included in the contract.
What endowment insurance programmes exist
Endowment life insurance programmes can broadly be divided into several types:
1. classic life insurance – the insurance contract is opened in the national currency, the insurance premium is paid either evenly or in instalments, and if no insured event occurs the insured person receives all the funds back plus investment income;
2. life insurance with profit participation – the insurance company earns an annual profit and distributes it among the insured persons;
3. guarantees in an international currency – you can choose indexation, or conclude the contract directly in a foreign currency (US dollars), although the return on such a policy will naturally be lower;
4. insurance policy plus investment – the part of the funds allocated to savings is invested in securities.
Example:
Imagine that you have concluded an endowment life insurance contract for 20 years. Each year you pay the insurance company 100,000 tenge. After 20 years, having received 2,000,000 tenge plus interest, you can spend this money on your children's education or other purposes.
If you conclude a term life insurance contract, you pay 15,000 tenge each year. After 20 years you will receive nothing. But if an insured event occurs, you or your family will be paid 2,000,000 tenge, provided that this sum insured is specified in the contract.
Guarantee of payment under the policy
Insurance companies in Kazakhstan are supervised by the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market (ARDFM); Kazakhstan is a member of the International Association of Insurance Supervisors (IAIS). This means that supervision follows international standards. As a rule, an insurance company reinsures its large risks with another insurance company, most often a foreign insurer with a high international rating. One insurer reinsures with another insurer. In this way, the sum insured under term and endowment insurance programmes is guaranteed to be paid to all insured persons.
Insurance for young people
Young people rarely think about life insurance, yet it can help them save money for various goals and protect their interests in the event of injury. The younger you are when you conclude an endowment life insurance contract, the lower the premiums will be and the larger the sum you will receive at the end of the term.
The worst-case scenario
If the insured person dies, their heirs will receive the entire sum insured within 30 days, regardless of how many premiums the person had paid. If a person is injured as a result of an accident, the insurance payment will be calculated as a percentage of the final sum.
That is, if you break an arm, you will receive money under the life insurance contract, but this sum will be smaller than the one you would receive when the contract term expires.
Additional advantages
Under the Tax Code of the Republic of Kazakhstan, premiums under endowment insurance contracts are not subject to income tax, which means you save 10%.
So, if you pay 100,000 tenge a year on a policy, 10,000 tenge of income tax is returned to you. In addition, your money is protected by deposit secrecy. It cannot be confiscated and is not subject to division on divorce.
Important to remember:
Endowment life insurance is a long-term commitment. If you decide to terminate the contract early, you will get back less than you paid in.
The return on endowment life insurance is 3-5%. This is less than on deposits, but it is more reliable. No bank will take your money on deposit for 20 years, whereas a life insurance contract is concluded precisely for a period of 5 to 20 years.
As a financial instrument, endowment life insurance suits people who find financial discipline difficult. It will help you save money for an important event or simply create additional income for retirement, while protecting your family from tragic accidents.
How to buy endowment life insurance
The simplest and easiest way is to call us, and we will select the best offer for you
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Advantages and limitations
- insurance protection throughout the contract term;
- disciplined building of savings;
- the ability to name a beneficiary in advance;
- a long period of financial commitments;
- limited access to the funds paid in;
- the surrender value may be lower than the premiums paid.
How to choose a programme
- define the goal and the savings period;
- choose a regular premium that you can afford;
- compare the sum insured with your family's needs;
- study the exclusions and health requirements;
- request a table of guaranteed and surrender values;
- clarify the consequences of late payment;
- check the conditions for changing the beneficiary.
Early termination
On early termination of the contract, the client usually receives a surrender value calculated under the policy terms. It is not necessarily equal to the sum of the premiums. Before signing, ask for the values for each year of the contract.
What to do in the event of an insured event
Notify the insurance company within the specified period and request a list of documents. Keep the policy, proof of premium payments, medical documents and details of the beneficiary.
This material is for information purposes. The terms are determined by the contract with a licensed life insurance company.