Banks offer investment life insurance as a replacement for obsolete deposits. It can bring big profits, but as a banking service it is difficult to perceive and carries increased risks.
Three years ago, the insurance sector showed high dynamics in a positive direction. The increase in the number of insured persons was facilitated by the activities of the banking sector.
But if earlier insurance was charged during the issuance of loans, now many banks operate on this product as a replacement for outdated deposits and offer citizens investment life insurance (LIS).
It can bring big profits, but as a banking service it is difficult to perceive and carries increased risks. And before you take advantage of it, you will have to figure out what the indicated abbreviation implies, and what fundamental principles are laid down in the concept of “investing”.
In this article we will try to analyze in detail a new banking product and show what you need to pay attention to when a bank offers it to you.
What is hidden under the acronym of IJL?
A new term for the market means a product that combines insurance service and the possibility of obtaining passive income by investing part of the funds in financial instruments offered by insurers.
Among the assets that the insurer can offer, precious metals, stocks of companies, etc.
The risks of this tool include:
Death of the insured person;
Survival until the expiration date of the agreement between the bank and the client.
The amount paid on them is the sum of the down payment and the investment income received. An insurance contract may be signed for a period of at least 3 years. The insurance premium indicated in the document may be paid both simultaneously and throughout the term of the insurance in equal shares.
The cash amount received from an individual is divided into two parts. The guaranteed part goes as an investment in assets, which are characterized by high reliability and a fixed percentage of return. The profit obtained allows you to provide the necessary payments to the insured person.
The remaining money is invested in assets with high returns, but at the same time, with high risks. It is the investment share of funds that provides a high profitability of IIS.
This type of insurance is not a guarantee of profit. If the money intended to generate income through investments was invested in instruments that showed zero efficiency, the policyholder receives only the amount of guaranteed funds, the amount of which never exceeds 100% of the deposit.
In the event of the death of the client, a down payment is paid and the percentage received from investing on the date of death. The best yield can be obtained if an agreement has been concluded for additional types of insurance events.
Benefits of Investment Life Insurance
One of the key advantages of the IIS is tax incentives. Firstly, an individual can receive a thirteen percent deduction from the contribution that was paid under an insurance contract. Secondly, policyholders get rid of the need to pay taxes on the amounts received upon the occurrence of insured events. The maximum deduction (15,600 rubles) is paid under contracts calculated for an insurance period of five or more years, the amount of which does not exceed 120 thousand. If the income is higher than the existing refinancing rate, the client will have to pay income tax.
In relation to deposits, investment life insurance has some legal advantages. From the moment the payment of the premium has taken place, until the date of payment of the incurred risks or the date of termination of the contract when the premium is returned, all funds are in the hands of the insurance company. They are not the property of debtors and are not held by third parties. Such funds are not subject to confiscation by writ of execution, they are not divided in the event of a divorce proceedings, it is impossible to seize them. They do not need to be indicated in declarations upon submission to tax authorities.
The advantages of ILI include the ability to conclude an agreement for any person. That is, upon the occurrence of an insured event (in particular, death), all funds will be received by the person in whose name the document was drawn up. It can be any person, not necessarily a relative.
The guaranteed part is also a certain advantage, given the fact that part of the funds is invested in financial instruments.
Disadvantages of Investment Life Insurance
The main disadvantage of investment life insurance is the inability to terminate it ahead of schedule, returning all previously paid contributions. Due to the minimum term of the contract of three years, this can cause great difficulties. But even with early termination, the negative consequences will be felt less than with the rejection of the cumulative insurance service. At the time of termination of the insurance contract, the client receives the amount called the “redemption”. If the insurance premium was paid in a single payment, then 75-90% is subject to return. Sometimes this figure can be close to or equal to zero.
The disadvantage of IZH lies in the fact that not all causes of death can be recognized as an insured event. This includes a list of exceptions prescribed by the Civil Code of the Russian Federation. However, it is likely that the insurer has expanded this list by writing individual clauses in the text of the agreement. It is extremely important to read the rules by which the insurer makes payments in those situations that fall into the above list. Almost always, a repurchase share is paid, but other conditions may exist.
A significant drawback is the lack of guarantees from the state, when people are not able to receive the payments due to them due to the bankruptcy of the organization or for a number of other reasons.
The disadvantage is the lack of guarantees in terms of profitability, since part of the insurance premium may “disappear” when trying to get income from risky strategies.
Important Points When Making Investment Life Insurance
If during a visit to the bank, employees offer you investment life insurance, be sure to check out the product you are offering.
Recently, there have been frequent cases when representatives of a banking organization, ILI present in the form of a deposit with a high percentage of yield.
If you already understand the difference between these two products, and are ready to take risks, it is very important to pay attention to several things:
1. The amount of redemption;
2. List of available exceptions;
3. Financial instruments for profit.
All strategies that an insurance broker offers are not transparent. The client cannot evaluate the dynamics of the movement of certain assets, so he has to take his word for it.
The insurer can hide its method of work for quite objective reasons, for example, if it does not want it to be copied by competitive organizations.
In this case, the policyholder can move in two directions.
The first is to find a strategy whose information is publicly available or the income is tied to certain instruments, for example, gold or oil.
The second is to trust the analytic department, which works in the insurance company.
The choice of strategy should be based on a participation rate. This indicator shows how much of the growth belongs to the policyholder. Its value can vary greatly among different representatives of the insurance industry.
The client’s profitability is equal to the profitability shown by the selected methodology, if the above ratio is 100.
The difference between one organization and another may be that the percentage of profitability for some applies to the full amount received from the insured, and for others only to its investment part.
And only in the second case, a breakdown of the contribution amount is a key operation for determining future income.
The insurer can offer the client an option that allows you to change the strategy during the term of the contract, as well as a function that fixes income.
A change of strategy is needed only at times when the initially selected technique did not bring the desired result. The number of such shifts is always limited, for example, once per calendar year, and the participation rate is determined at the date of the operation.
The second option, profitability fixation, is advisable to use if you predict that the fund you have chosen, which at the time of signing the insurance contract shows high growth rates, will be characterized by negative dynamics in the future.
Before choosing an insurance company, you need to ask about the possibility of creating a personal account on the official resource of the insurer on the Internet.
This will allow you not only to monitor the dynamics of changes in the fund and make important decisions in time, but also make it possible to change the terms of the existing agreement (for example, increase the term of insurance) without visiting the office.
Such an opportunity appeared several years ago when a bill was passed that authorized the design of insurance services via the Internet.
Is it worth it to use the ILI?
In conclusion, we note the main idea of this article – investment life insurance will never be an analogue of a bank deposit . If someone will tell you the opposite, remember that such a person either does not understand this area, or intentionally wants to mislead you. IIS is a separate financial product, which has its own advantages and disadvantages.
If you understand all the risks of investing in such a product, then you can try to make it one of the types of your passive income. The main thing is not to invest the entire deferred amount in one strategy. The choice of several strategies minimizes losses in case of low efficiency of one of them and increases the chance of a significant profit for the entire insurance period, when both methods showed high growth dynamics.
Whether to use the financial product described in the material or not, everyone decides for himself. We tried to describe in detail what he presents to himself, which has advantages and what disadvantages. It is important to understand that any investment is associated with risk and the chances of profit are estimated as 50 to 50.