The categories defined below are intend to facilitate the analysis of life, accident, disability, critical illness, education and pensions insurance policies.
These are the covered events and the amounts for which you are paying a premium. Generally, each covered event generates a cost, which is included in the premium to be paid. These events can be policy´s main coverages (mandatory), as well as optional or additional coverages (riders). It is important then to deepen into the events covered by your policy, in order to evaluate the convenience of contracting each one of them, as well as to know its cost, in order to compare with other alternatives that are offered in the market.
The premium is the value that you must pay to the insurance company to have compensation coverage for events contracted. This can be a premium destined only for the payment of the contracted coverage, or it can also include percentages destined to savings, and administrative charges. It is very important to understand the composition of the premium, in order to evaluate the actual costs of your insurance, as well as what is the percentage that goes to savings (for savings or universal policies), and to administrative charges (if included in the premium), in order to be able to compare them with other market alternatives.
You should keep in mind that premium amount may have periodic readjustments, and it is important to understand their future behavior from the beginning. For some of these cases, the premium increase may be tied to the age of the Insured (annual increases according to rates stipulated by the company), and in other cases, the increase may be tied to a particular rate or index.
Some life insurance policies today, offer the option to accumulate as a saving, part of the money paid to the company as a premium.
In return, the company will recognize some type of return or interest rate to the Policyholder. Some of the most common practices are to offer to the Policyholder a fixed interest rate, a variable interest rate, a performance tied to some index, the combination of the previous ones, or even, today there are policies that offer more sophisticated performance alternatives, as it can be those tied to stock indexes, among others.
It is very important that the Policyholder fully understands:
1. ¿What is the return offered to the policyholder by the company on his savings and how does it work?
This practice is recommend because when acquiring a universal life insurance (part of the premiums goes to savings on your policy), you are also acquiring the option to save money, which will be invested through the insurance company. By knowing how the offered return option works, it can be compared with other investment alternatives existing in the market.
2. Projections vs guaranteed returns:
During the purchase of life insurance with a savings plan (universal life insurance), projections of future values to be receive can be disclosed to the Policyholder. It is important to understand if these are the future guaranteed values, or if they are projections of futures values, made with supposed interest rates or returns.In the latter case, the future values to be receive will depend on the rate that the insurer efectly recognizes to the Policyholder according to the profitability model offered, which may be higher or lower than the projected values.
3. ¿How is the return rate offered by the company to the policyholder generated?
The saved money will generate some returns depending on the model that the life insurance company has to offer. These returns are likely to come from investments made by the insurance company with policyholder and other customers´ savings. That is why it is relevant to know the type of investments made by the insurance company.
It is recomended to evaluate possible unexpected or undesired situations that may alter the conditions and the purpose for which the insurance policy was acquire. It is recommend evaluating before getting some insurance policy, possible negative scenarios (cancellations of policies, change of address of the insured, changes in the covered risk situation, non-payment of premiums, closing companies, processing a claim, that expectations of projected future values are not met, among others), expected scenarios and optimistic scenarios (insurance that generate capital accumulation, which are tied to variable interest rates or indexes, and generate higher than expected returns, among others), and how will the policy works under those possible scenarios.
Usually insurance policies have annual validity, so it is important to know the renewal conditions of the insurance policy contracted. Situations may arise at the time of renewal, such as premium increases, requiriments on updating information, either they offer automatic renewal or not, grace periods for premium payments, updating assured amount, among others.
Some insurances policies, such as life, pensions and education policies, offer options to save money through the policy. In some of them, the premium to be paid may be destined to both the payment of life insurance and a percentage to be save. For this type of insurance policy, it is recommend evaluating, among other aspects, the return offered to the policyholder on his savings, what type of investments is the company doing with customers savings, and to understand thath the projected future values to receive can be guaranteed values, or they can be values based on assumptions of future returns, in which case they would not be guaranteed (there are insurance policies that guarantee future values, and others that do not).
Generally, insurance policies offer basic or main coverage, and some additional coverages (optionals or mandatory), which are usually presented as riders. There will always be a contract document for each risk coverage contracted, either the main or the riders. The basic coverage will always generate a cost, and usually each rider generates an additional cost, since it is an extra risk event that is cover under the insurance policy. It is important then to check what riders or adittional coverages are included in the policy, as well as the need for the Policyholder to be protected against each one of those risks.
Age of eligibility:
Is the minimum and maximum age that a person must have to be insured by a specific insurance policy.
Age of coverage:
This refers to the moment in which the risk coverage of an insurance policy ceases. Permanence may be limited to a certain number of years (for example, a policy contracted for 10 years from the moment it becomes effective), or to the age of the Insured (for example, the coverage will end at the time the Insured reaches age 65). Within the same policy, the permanence or age of coverage may differ of the one defined for the basic or main coverage, and for each of the contracted riders or additional coverages (for example, the permanence or age of coverage for the death risk protection for an Insured in his policy may be when he reaches age 80. At the same time, the permanence or age of coverage for the disability risk protection in the same policy be when he reaches age 65).
Each company establishes in the contract, clauses or conditions for each one of its insurance policies, the conditions under which the contract will be terminate, thus ceasing the coverage of the risks contracted.
It is very important that the Policyholder understands under what circunstances can his insurance policy be canceled, in order not to lose the coverage contracted because of lack of knowledge of them.
Each company establishes in the contract, clauses on each of its insurance policies, about the conditions or excluded events, under which, if a loss occurs, the Insured or its Beneficiaries would not have the right to claim the compensation (s) contracted.
It is very important that the Policyholder (is the person who contracts the insurance) and the Insured (is the person who is exposed to the risk, subject of the insurance contract) know the exclusions of their insurance policy, in order to be totally aware of the Events and situations covered and not covered by the insurance policy.
Insurance policies can generate different types charges:
- Amount to be payed for insurance for the main risk covered.- Amount to be payed for insurance for the additional risk (s) covered. These additional risks also known as riders.- Administrative charges.
The cost to be payed for the different types of risk coverages usually depend on:
a. Age of the Insuredb. Sex of the Insuredc. Condition of Smoker or Non-Smoker.d. Assured amount and riders contracted.e. Periodicity of Premium Payment.f. Country of Residence.g. Pre-existing conditions.
Insurance companies, for some of their insurance policies, hire reinsurance companies, which function as insurers of the insurance companies. This means that the insurance companies that issue a policy, whether due to their financial capacity, regulation, or their own policies, can hire a reinsurer that assumes payment of all or part of the assured amount of an insurance policy, against the occurrence of a loss.
Depending on the size of the policy to be contract, the type of policy, as well as the solvency of the insurance company with which an insurance policy is to be contracted, the fact that a reinsurance company also covers the insurance contracted, is relevant.
In some countries, and depending on the type of insurance policy contracted, the compensation to be receive for it may or may not be tax-free. The acquisition of some insurance policies may or may not also grant tax benefits to the Policyholder, depending on their country of residence and the type of policy purchased.
It is important that you consult with your Tax Advisor about the conditions stipulated for the acquisition and indemnities of the different types of policies in your country.
a. While it is true that all the categories described by getCiertto are important, the legal structure has the most relevance, and is one of the most unknown information by policyholders.
This category refers to knowing the regulation and legal framework under which the policy is govern.
It is very important to understand the Legal Structure since its knowledge allows us to understand that depending on the type of companies and legal entities that make up the structure, whether there is a reinsurer or not, the investments and the type of corporations under which resources and provisions lie, and the normativity and regulations that cover them, it is possible to better understand and evaluate counterparty risks (risks of an entity not fulfilling its payment obligations).
This category refers to the importance of knowing the place of issuance, registration and administration of insurance policies, in order to understand the regulations that govern them.
This information is useful for the event in which there is a need to address legal issues about insurance contracts made between the parties.
It is very important to review the contract or clauses of any insurance policy before acquiring it, in order to fully understand the scope, conditions, obligations, and commitments to be acquire by the parties.
Keep in mind that any additional condition that is offered or illustrated on an insurance policy, and that it is not detailed or documented, either in the contract or clauses, in the cover, quote, website, brochures, official documents or communications issued by the insurance company offering the product, should not be considered as a real and true alternative, unless you receive from
the insurance company directly, or from one of its workers, whose attributions thus allow them to do so (very important that the official is authorized and qualified to issue the document or information in a formal way), a written certification that validates said conditions.
Additional recommendation: as a valid condition offered for insurance company, normally and legally, they are not accepted nor are they valid, conditions offered outside the contracts and clauses signed with the client. In the same way, hardly a client will be able to assert conditions offered through personal mails, or even corporate by officials not unauthorized to issue this type of conditions or communications.