In addition to its primary purpose of providing a safety net for loved ones in case something happens to you, life insurance offers other possibilities:
- Accumulate funds for planned expenses—such as children’s education at university.
- Save for a retirement supplement.
How to Choose an Insurance Program?
There are various insurance programs, which can be categorized into four types (specific conditions for each type can be clarified with the insurer):
- Risk Insurance
In its purest form, risk life insurance involves a single insurance event—death. In this case, the insured makes a one-time payment or pays regularly, depending on the agreement. When the insurance event occurs, the money goes to their relatives.Risk life insurance often serves as a basis for mixed insurance, where you receive a payout if you fall ill or suffer an injury. However, there are no accumulated savings in this case.In such mixed insurance, you can choose:
- The amount of payout.
- The list of possible adverse events (disability, injuries, life-threatening diseases).
- The term—from one year to 20 years or more.
The amount of contributions is calculated by the insurance company representative and depends on the company’s rates and other factors (e.g., the amount of payouts).
Example: Oleg works as a driver and is paying off a mortgage. Last weekend, he “slipped, fell, suffered a closed fracture, lost consciousness, and woke up—plaster cast!” Now he won’t be able to work for a while. But Oleg has an insurance policy. The insurance company will pay him an amount that will support Oleg’s family while he recovers from his injury.
Another specific case of risk insurance is credit insurance. In this case, if the bank is named as the beneficiary, the payout goes not to you but to the bank where you took the loan. If something happens to you, your family won’t have to pay off your debt.
- Accumulating Insurance
This combines insurance and savings. In classic accumulating insurance, there is a fixed yield. However, the potential income will be lower than with investment insurance.After you conclude the contract, you may have both options or one of the two:- If an insurance event occurs, your beneficiaries (those you name in the contract) will receive a payout (for the risk of “death”).
- If nothing happens to you before the contract ends, you will receive your accumulated savings (for the risk of “survival” or “survival until a specific event”).
Example: Nikolai and Anna have a son. The parents are sure they will gift him an apartment when he reaches adulthood. Nikolai pays contributions to the insurance company every year, and on their son’s 18th birthday, they will give him a certificate. Throughout these 18 years, Nikolai’s life is insured: if an accident occurs, the insurance will pay the accumulated amount by the date specified in the contract.
In other words, you can save money for something important for 10 years, and throughout this time, your life will be insured. You can choose the amount of contributions and payouts yourself. The term can be from 5 to 20 years or more. A contract can also be concluded for a shorter term than 5 years, but in that case, the yield will be low, while the rates will be high.
- Voluntary Pension Insurance
The voluntary pension insurance program is similar to accumulating insurance. The first difference is that the “important event” is reaching retirement age, and the second is that you can choose the period during which you (or someone else you designate) will receive an additional pension. Otherwise, it works the same way: you choose the pension amount and pay regular contributions.Example: Anatoly Efremovich decided that his pension would not be enough. For the last 20 years, he has been paying contributions under a pension insurance program. After retirement, Anatoly Efremovich will receive additional payments for life.Options for pension insurance:
- Lifetime Pension: You choose the period from which you will start receiving an additional pension. If something happens to you, the accumulated pension balance will not “disappear” but will be paid to the “beneficiary” you designate—such as your spouse or another close relative.
- Term Pension: You specify a certain period during which you want to receive an additional pension (e.g., from age 65 to 70).
What additional conditions can apply to pension insurance?
- Exemption from contributions in case of disability of the 1st and 2nd groups. In this case, additional monthly payments may be assigned.
- Accident insurance (one-time insurance payouts in case of injury, death, and disability only as a result of an accident).