Endowment life insurance. What it is? For what purposes is it worth using it? And for what purposes is it completely inappropriate? I will try to answer these questions under the cut. Based on personal experience.
Recently, banks have quite often begun to offer clients to conclude an endowment life insurance contract, positioning it as a “deposit with an additional insurance function”. Or as “insurance with an additional deposit function”. Technically, these statements correspond to reality. But there are nuances. And significant.
What is Endowment Life Insurance?
You conclude a contract with an insurance company, according to which it insures your life for a certain amount, which you contribute in equal shares during the term of the contract.
For example, you insure your life for 1,000,000 rubles and for a period of five years. This means that every year you will have to deposit 200,000 rubles into your insurance account. You can deposit on a quarterly, semi-annual or yearly basis. The amount deposited is annually accrued investment income.
Insured events
Risks of death, diagnosis of especially dangerous diseases, and disability are insured. Separately, it is worth mentioning such an option as the risk of disability, upon the occurrence of which the program will not end, and the insurance company itself will continue to pay insurance premiums for you. The full list of available options should be checked with a specific insurance company.
There is one more risk - you lived to see the end of the contract and nothing terrible happened.
If an insured event occurs during the validity of the contract, the entire amount of the insurance (1,000,000) will be paid, regardless of how many contributions were made at the time of its occurrence, plus the accumulated investment income.
Pluses of endowment life insurance program
Firstly, life insurance itself belongs to them. It is not for you, but for your heirs. None of us are immune from accidental bricks falling on our heads. Or from a drunk driver who flew into the oncoming lane. And from a sober one too. In this case, the insurance will give your loved ones a rather large amount, which may be critical for them. Especially if you were the only breadwinner. She will not drown out grief, but will reduce everyday difficulties.
Secondly, it is the possibility of accumulating a significant amount. Retire yourself, or send your children to school, or go home. You will be required to pay for this program, creating such a habit for yourself (albeit a little violently). "Pay yourself first" (c), as stated in the excellent book "The Richest Man in Babylon".
Thirdly, it is the possibility of obtaining a tax deduction. If you have an official income taxed at the 13% rate, you can receive a premium deduction for this program. The maximum amount of contributions for which a deduction can be requested is 120,000 rubles per year. This will allow you to return 15 600 rubles from taxes paid by you earlier (if their amount allows, of course). And so every year.
Cons of the endowment life insurance program
It would seem that everything in this program is excellent. And life is insured, and money is accumulated, even investment income is accrued. And the tax deduction is like the icing on the cake. But not everything is so simple.
The first thing that distinguishes this program from an ordinary deposit (instead of trusting the people who it
The second is blocking the paid insurance premiums from being returned. In my contract, it is two years. Those. if I decide to terminate the contract within two years, nothing will be returned to me.
The third is the presence of a “redemption sum”. This is the money that you will pay to the insurance company for the early termination of the contract. And this amount is very significant. In my case, it is about 110% of the annual fees.
Fourth, no one guarantees an investment income. It may well turn out to be zero, which means that inflation has been eating your money for a whole year, and nothing can be done about it.
Fifth, the investment income itself is not credited immediately after the start of the program, but after at least a year. I signed my contract in September 2017. And according to its terms, I did not receive any income for an incomplete calendar year. For 2018 my investment income was also 0. Because the insurance company deducted something there. My manager at the bank (with the insurance company of which the contract was concluded) could not really explain the reasons to me in more detail than "Well, yes, I also happened."
For what purposes can you use the endowment life insurance program?
If you want to save up for something specific and for a certain period of time and at the same time protect your money from yourself, you can use this program. It is long-term (the minimum insurance period is 5 years), and large redemption sums discourage the desire to complete it ahead of schedule and take away the current savings.
I entered this program for a period of 25 years and with the aim of obtaining savings for retirement. The program, as a whole, fulfills this goal.
For what purposes is it not suitable?
It is definitely not worth considering such a program as an alternative to a deposit. These are completely different products. You can put money on a deposit, and, if you wish, replenish it. You are always required to pay insurance premiums. You can withdraw money from the deposit, having lost only some part of the accrued interest, returning the deposited amount in full, in case of early termination of the insurance contract, you will pay a very significant amount, and as a result, you can get less than you paid.
Technically, you can change the terms of the contract. Reduce the amount of insurance premiums, reduce the duration of the contract, or transfer the contract to a paid state. But in all three cases a certain and substantial amount will be deducted from you. It turns out that it is impossible to actually change the original terms of the contract. Subscribed to pay X money for Y years - pay.
What are the alternatives?
The only alternative to the program is to take out a separate life insurance policy (it costs several thousand rubles a year), and invest the amounts that you wanted to send as insurance premiums at your own discretion. From a trivial deposit to a slightly less trivial brokerage account (IIS + OFZ will give a rather conservative way of accumulating funds, plus a tax deduction). But it takes discipline. The pay-yourself-first habit does not appear overnight. But on the other hand, your money remains liquid (you can withdraw it in case of emergency), and you yourself manage the instruments in which it is invested. And if additional income turns out to be zero, then it will be only because of your actions, and not someone else's.