Insurance news: Understand clearly to avoid confusion
(Baonghean) - In addition to protecting themselves and their families' finances against life risks, many people participate in life insurance because it is a fairly effective and safe form of financial accumulation for the future.
In addition to protecting themselves and their families financially from life risks, many people participate in life insurance because it is a form of financial accumulation for the future that is quite effective and safe. However, which of these two factors is the key factor and how to correctly understand the "accumulation" factor of this financial instrument is what buyers need to learn.
When participating in life insurance, customers are always fully and in detail advised on the rules, terms of the contract, their rights and responsibilities as well as those of the insurance company.
However, many customers still have difficulty accessing insurance terminology. Among them, “preservation dividend” and “contract final dividend” are common concepts, but sometimes insurance buyers do not fully understand these concepts.
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The premiums of participating insurance contracts will be collected into a fund, called the Participating Policyholders Fund. The assets of the Participating Policyholders Fund are usually invested in long-term and highly safe investment assets, mostly government bonds.
It can be seen that this is a highly secure, low-risk investment channel, suitable for customers with low risk tolerance and stable profit expectations. Profits from investment activities after deducting expenses will be distributed to the insurance buyer as an unsecured dividend under the name of insurance dividends and final contract dividends. Insurance dividends are announced to the insurance buyer every calendar year.
Unless the customer requests an early withdrawal, the insurance premium will be accumulated each year and the customer will receive the full amount when the insurance company pays the relevant insurance benefits up to the time the contract matures or an insured event occurs such as death or total permanent disability.
Meanwhile, the final contract dividend is only announced once when the contract matures or when the customer receives the death or total permanent disability insurance benefit.
Although the dividend is not guaranteed, it is a part of the benefit associated with the insurance contract and creates the accumulated value of the contract that the insured is interested in.
However, not all insurance contracts are entitled to dividends. Instead, only insurance product contracts that participate in profit sharing and are in effect at the time of dividend announcement are entitled to dividends, and depending on many factors including the type of insurance product the customer participates in and the time the contract is in effect, the rate of dividends the customer receives will vary.
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There are many factors that affect the level of insurance premiums and final contract dividends that customers receive each year, and may not be exactly the same as the contract benefits illustration table. The main factor is the performance of the Fund that the contract owner participates in: if the Fund's performance is good, the insurance premiums and final contract dividends will be high and vice versa. One of the factors that greatly affects the performance of this Fund is the long-term bond interest rate. However, according to the announcement of the State Treasury, the interest rate on government bonds has been on a downward trend in recent years and has remained low since 2014.
In addition, the announced annual dividend level also depends on the payment of insurance benefits made between the insurance company and the customer. For example, for the Phu-An Loc product of Prudential Company, if the dividend is paid after the first critical illness insurance benefit is paid, the insurance amount participating in the profit sharing will be 100% of the insurance amount; if the profit sharing takes place before that, the insurance amount participating in the profit sharing will be higher, at 200% of the insurance amount.
In addition, factors such as the insurance product line, the insurance amount and accumulated benefits from previous years, total premiums paid, contract participation period... will also affect the actual final contract benefits and profits announced to customers.
What to expect from an insurance contract?
Although it brings financial benefits to customers, the non-guaranteed distributions mentioned above are not the key factors that make up the value of an insurance contract. Financial protection is what customers should expect and really care about.
Every year, insurance companies must set aside reserves to ensure that they can fulfill their commitment to pay insurance benefits to customers in the future. In the event that the insured person encounters risks such as death, injury, illness, etc., the insurance company will pay insurance benefits to compensate for these risks. At this time, life insurance will immediately become a solid support to replace the lost income of the breadwinner, helping the family to be financially protected and overcome major life events. This is the reason why life insurance has become one of the most effective and safest financial protection tools today.
