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what is endowment life insurance

In this article, we will try to tell you in detail:

  • What is endowment life insurance?
  • What is a life insurance policy for?
  • How does endowment insurance work?
  • Pros and cons of endowment life insurance
  • The most important questions before concluding an insurance contract

What is endowment?

Endowment life insurance is a type of insurance with which you can accumulate the required amount by a certain date, receive a guaranteed income annually to protect funds from inflation and insure your health against unforeseen circumstances.

Endowment types of insurance can be divided into 2 types:

  • Children’s savings programs
  • Adult Insurance Programs

Customer Story

Vladimir I. insured his 13-year-old daughter under the endowment insurance program “Children”. After 4 years, he was diagnosed with cancer. After 5 months, he was gone. Until the end of the contract, our company made contributions for it, and after coming of age, the daughter received the entire amount under the contract.

“Although I knew that at the age of 18 I should receive money, I couldn’t believe it until I got it. I was very glad that this happened. I remembered my dad: so many years have passed, and he, it turns out, still cares about me. He is still a reliable shoulder and a kind smile for me. When I talked about the case with my dad, about my payment, my friends saw by a living example that insurance really helps.

How does endowment work?

  • The endowment life insurance contract is concluded for a long period from 5 to 40 years.
  • You determine the amount you want to accumulate by the end of the contract period and deposit it quarterly or annually. In standard endowment programs, a guaranteed percentage of profitability is 4-5%. But there are exceptions when the guaranteed income reaches 11.8%.
  • For the entire duration of the contract, you are protected. The insurance company will assume financial obligations and continue to make contributions for you in the event of disability, disability or death as a result of an accident.
  • At the end of the contract, you receive the accumulated amount, taking into account additional income.

Features of the program

An important condition of endowment insurance is that you cannot withdraw money ahead of schedule without losing part of the funds.

  • The contract is concluded for a long time.
    Most often from 5 to 40 years, but there may be exceptions. For example, there are currency life insurance programs designed for only 2 years.
  • You choose the amount of the insurance premium yourself.
    It depends on the term of the contract and the amount you want to save.
  • Contributions must be made regularly.
    How often – you choose yourself. It’s like making loan payments, only you invest in your future and the future of your loved ones, and not deduct interest to the bank.
  • Most programs include an additional income of 4-5% per annum.
  • If an insured event occurs (illness, injury, etc., depending on the terms of the contract), the insurance company pays the money.
    In case of death, the beneficiaries will receive the money. Even if at the time of death the insured made only 1 installment, the beneficiaries will receive the entire amount under the contract – the insurance company will continue to make contributions instead of the client.

Cons of endowment

  • Contributions must be made regularly.
    This is a prerequisite. If you do not make a contribution on time, the contract is terminated early, and all the money deposited will most likely be lost.
  • Early termination of the contract is unprofitable.
    You will not get back all the money, but only the redemption amount, which is different in each year of the contract. Usually, in the first 2-3 years, the size of the redemption amount is zero rubles.
  • Why?
    Endowment programs are long-term. As with any bank deposit, the company sends the deposited money into circulation in order to provide an income of 4-5% at the end of the contract and increase its assets for a long period. Just as it is not profitable for the bank for you to withdraw money from the deposit ahead of schedule, it is also unprofitable for insurance companies to terminate early.
  • Changing the terms of the contract in the first 3 years is also unprofitable.
    To change, for example, the size of the contribution, the company needs to recalculate everything again. Tariffs are changing. And the amended contract is essentially a new one, so it does not take into account your contributions from the past, but the redemption amount.

Pros of endowment

  1. If you are officially employed and pay personal income tax, you can get a tax deduction from the state under endowment programs, as well as under all life insurance contracts for a period of 5 years or more. You can return 13% of the paid personal income tax from the amount up to 120,000 rubles per year. For example, if you make an annual insurance premium of 120,000 rubles, for 5 years you can additionally receive 78,000 rubles from the state.
  2. Beneficiaries can be anyone, not only close relatives, and payment can be received very quickly – within a month. Therefore, endowment is often used as a way to form and transfer an inheritance.
  3. As long as the contract is valid, money cannot be seized or frozen, even by a court decision.
  4. In case of divorce, the endowment policy is not jointly acquired property. Spouses cannot claim part of these funds when dividing property.
  5. Many endowment programs are flexible, you yourself determine the set of risks that will be covered. For example, you want financial support in case you become seriously ill, but you don’t need a payout if you break your leg.
  6. Today, the endowment market is actively changing, and the programs include many services that are really useful. For example, many of our programs include online medicine services – free access to doctors in 25+ specialties via audio and video communication.

To make a deduction, you must prepare the following documents:

  • Tax return in the form of 3-NDFL;
  • Documents confirming the payment of the fee;
  • A copy of the insurance contract;
  • A copy of the license of the insurance company;
  • Application for social deduction.

You can apply for a deduction online in your personal account on the website of the Federal Tax Service.

The tax service checks these documents within a period of up to three months. The deduction will be transferred to the current account specified in the application within a month after the end of the audit

You can also get a tax deduction through your employer before the end of the tax period. That is, in the same year in which you made a contribution to the life insurance program.

Renaissance Life clients can apply for a tax deduction using the free service in their personal account.

In simple words – when is endowment suitable?

If you need to save money and not worry about their safety.

If you need to take care of the future of loved ones, especially children.

If you want to find a profitable alternative to bank deposits, but are not ready to take risks.

If you want to “hide” money.

If you want to save for retirement on your own.

Customer Story

The largest payment in the history of our company is 18.4 million rubles. When our client died suddenly of a stroke, he had 6 mortgages on his account, which his wife would have to pay for herself. But since there was insurance, the company repaid all loans for the client.

What questions should you ask yourself and the company before applying for an endowment policy?

Is this the right contribution for me?
realize that I will have to regularly invest this money for several years and remember that it is impossible to withdraw money before the end of the contract.

What is the size of the redemption amounts under this program?
I have carefully read the table of redemption amounts.

What should I do if trouble happens and I can’t make a contribution on time, but I contact the company in advance?
I found out what options the company could offer me

What risks do I want to include in the program? Under what conditions will I receive a payment?
I clarified all the events that are considered an insured event, and got acquainted with the amount of insurance payments. Everything suits me.

Have I read the contract carefully?
I read all the terms and conditions in full, asked for an explanation of everything that I did not understand, and made sure that my expectations from this program were confirmed on paper.

Everyone decides for himself which program is right for him. The main thing to remember is that endowment life insurance programs will be beneficial for people with high financial responsibility.

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