Life Insurance Basics – Answers to All Your Questions

Life Insurance Basics

With regard to life insurance, we can safely say that it is currently the most complex and diverse type of insurance available on the market. A well-chosen package becomes both death and credit insurance, and savings. The latter feature makes it suitable for you to take care of your retirement years with your help. In the article below, I have gathered everything you need to know on the subject. 

What is life insurance?

The main purpose of life insurance is to be able to take care of your family and loved ones even in the event of an unexpected tragedy. The goal may even be to save money for a planned future event / investment / expense.

In practice, however, all insurance that covers some risk or event related to the life of the insured is included in this category. For example, marriage, childbirth, retirement, etc.

What types of life insurance exist? 

Life insurance is usually divided into three main categories: we distinguish between risk, access and a combination of the two, mixed life insurance. It is important to note that these are only theoretical groupings! 

In practice, we use predominantly risk life insurance as well as mixed constructions known as savings life insurance, which contain both risk and access elements. 

These types can be further categorized according to the type of events they cover (eg pension insurance). Let’s take a look at the characteristics of the most important types!

Risk life insurance

When we hear the word life insurance, most of us tend to associate it with risk insurance. The point with this type is that the insurer pays a pre-determined amount in the event of an unexpected, fatal tragedy. It is intended to ensure that the tragedy does not impose a significant financial burden on the contracted beneficiary, such as the family. In this sense, the beneficiary can even repay the remaining credit debts of the insured from the sum insured.  

Access life insurance

Access schemes pay out the full amount included in the contract when the insured reaches a certain age (or life event). So as opposed to risk life insurance, the insurer pays if the insured stays alive for the duration of the insurance. Access insurance cannot be used on the Hungarian market alone. It is possible to contract a construction that includes certain elements of access insurance.

Savings life insurance (mixed)

Currently, most life insurance in Hungary is available in a mixed design, which is a combination of risk and access insurance. In the event of the death of the insured, the financial institution pays the beneficiary the amount plus interest. But payment is also made if the insured party is alive at the end of the contract. 

Mixed life insurance is also commonly referred to as savings life insurance. Due to its accessibility features, it can also be considered as a kind of commitment, the amount of which is increased by a profit after a predetermined term. 

Mixed insurance is suitable, for example, to set aside for our retirement years, to teach children, or to achieve any long-term, capital-intensive goal. 

In the case of mixed insurance schemes, part of the amount paid is increased by the insurer in an investment portfolio, the return of which cannot be calculated in advance. Insurers use a so-called in the form of a technical interest rate, they undertake a smaller guaranteed return that they can certainly extract from the amount paid.

Unit-linked insurance

Unit-linked insurance (UL) or unit-linked insurance, which can be considered a sub -type of savings insurance, is also a popular form of life insurance. For this type, the policyholder can choose the risk level and composition of the asset fund in which the insurer will increase the amount paid. Currently, a significant part of the pension insurance available on the market can be classified as unit-linked insurance.

What are the advantages and disadvantages of a life insurance?

Provides complex protection

With a well-chosen life insurance, we can cover many key areas of our lives. 

With risk services, we can ensure that in the event of an unexpected tragedy, the family is not left without financial help. Thus, in addition to the mental burden, they do not even have to solve a financial crisis. 

Savings services can be a solution to achieving long-term goals, whether it’s marriage, retirement or children’s studies. 

In addition to life insurance, there are a number of additional packages. In addition to risk and savings services, we also have accident and health insurance solutions at our disposal. Eg: reimbursement of hospital treatment, service in case of disability, taking over the remaining fees after a specific event, etc. 

Termination of life insurance

The form of life insurance is definitely a long-term commitment and it is still worth calculating with.

Termination of savings life insurance can be complicated by administration and costly. In such cases, it is possible to repurchase the insurance, where the insurer repays a certain percentage of the amount received and the return. However, the percentage is significantly affected by the term of the insurance and how long we have been in the contract. In the first 2-3 years, repurchases can typically only be used at significant costs. 

In addition, it is possible to free the insurance. In the case of an exemption, the obligation to pay the premium ceases, but the insurance does not, so the repurchase conditions may improve over time. The insurer, on the other hand, will deduct the cost of insurance even in this hibernation state. You can read more about life insurance for parents here.

Life insurance can therefore be said to have a huge number of benefits, but only if we choose the scheme with due foresight.

What is worth paying attention to?

  • If you are considering taking out life insurance, you may want to think about what you intend to take out. 
  • Do you want to know your family safely even if God forbid something happens to you? 
  • Do you have a significant credit debt and don’t want to burden your loved ones in a disorderly manner in the event of your death? 
  • Do you want to set it aside for your retirement years, your kids ’wedding, or their teaching? 

By answering the questions above, you can more easily choose the product that is right for you in the market. 

How much can you put aside?

It’s also important to think about how much you can spend on insurance premiums. If you have a significant amount of money set aside, you can even take out single-payment insurance. In the case of a regular monthly payment, you need to clarify how much you can be sure to pay out each month. Canceling or amending a contract can be very daunting.

Comparison of life insurance

After that, you already know which aspects are most important to you when taking out insurance. You can compare the offers of different financial institutions with the help of TKM 

However, this data reflects only an approximate, average value and does not take into account many things. If you are curious about the exact amounts and conditions, you should definitely consult an insurance consultant in person.

How many life insurance policies can be taken out?

The good news is that there is no concept of over insurance for life insurance! This means we can take out any number of life insurance policies for a single risk. Financial institutions will all pay out the amount specified in the contract when the insured event occurs, regardless of the number of life insurances. Limit in this regard can only be set by the wallet.

When do you pay for life insurance?

It depends on what is in the contract. Insurances typically reimburse when two major insurance events occur. Those at risk are reimbursed in the event of death or accident. And savings insurance is when you reach a predetermined age or when another life event occurs (e.g., retirement). 

How old can you be tied up?

There are a number of conditions for taking out life insurance, especially risk life insurance. The insurance premium is mainly influenced by the degree of risk-taking, but there are factors that make the financial institution unwilling to enter into a contract. Such an influencing factor could be, for example, the work of the insured (how dangerous his occupation is). His state of health, lifestyle (smoking) and, of course, the age of the insured, as the risk of death increases with age.

The upper age limit for life insurance varies for all financial institutions, but the entry age is typically around 65-75 years. 

You can find out the exact data on the insurers’ website or in person, even with us

Who inherits life insurance?

For both risk and savings life insurance, we have the option to designate a beneficiary. Savings life insurance is the only form of savings where the customer can identify a beneficiary. If this happens, the life insurance payment will not be the subject of the estate. Thus, the amount is transferred to the beneficiary free of charge outside the inheritance procedure.

However, if the beneficiary is not specified in the contract, the money will go to the heirs of the insured. At an inheritance rate that exists at the time of the insured event. 

Didn’t it come together like that? Consult an expert!

If you are serious about taking out life insurance, you should definitely consult an expert. With the help of TKM and the myriad life insurance calculators, it is of course not impossible to compare different constructions. However, to find out the exact prices and conditions, it is not a good idea to visit the particular financial institution or an insurance expert. 

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