Why is life insurance through Finax so advantageous?
We have prepared an example combining the new term life insurance with investing through Finax. For the comparison, we have used an average term life insurance available in Slovakia. You'll find out that for the same amount of money, you can have the same insurance cover and still have a decent amount of money left at the end of the plan.
Juraj Hrbatý | News | 7. July 2021
It is a good practice of Finax to back our claims with facts and examples and to compare ourselves with the competitors. Our newest product, term life insurance, is no exception.
A basic introduction to term life insurance through Finax can be found here.
A concrete example is the best way to showcase our way of thinking regarding the new insurance product and its benefits. The example compares the products of two insurance solutions (Finax and an average insurer) using equal payments. Furthermore, the example also reveals the difference in premiums.
Cheaper insurance offers a combination of risk coverage and savings on premium, which are then used for investing. The role of gradually built-up assets is to serve as a substitute for the insurance cover, allowing the client to gradually reduce the sum insured and direct more money towards asset building.
The benefits of insurance through Finax are presented with the example of a young person with the following prerequisites:
- 20 years old
- Sum insured of EUR 50 000
- Insurance duration of 45 years
This insurance was evaluated at 11 insurance companies, which make up more than 90% of the Slovak market. The details of the insurance conditions may vary, but the core is very similar. The average annual premium, we would end up paying for, is EUR 266,23. The same amount would be paid throughout the duration.
Thanks to the insurance offered through Finax from Komerční pojišt'ovna, a.s., our client will end up paying a premium of 31,20 euros for the first 13 years. The difference to the average price of term life insurance from 11 insurance companies in Slovakia is invested. Therefore, during the first 13 years 235,03 euros per year will be invested gradually in twelve monthly deposits.
Whenever the value of the investment increases by the insurance unit, the sum insured will decrease by that value. The insurance coverage will be offset with the assets value.
The client would have saved EUR 5 056 on the premiums after 13 years with an assumed appreciation of 100% on the equities portfolio. Thus, they can reduce the sum insured to EUR 45 000, which in turn lowers the insurance costs.
As time goes, the value of their assets will increase, which will lead to further reduction of the sum insured. Therefore, when they get older and the unit cost of insurance becomes more expensive, they will not have to buy as many units of an increasingly expensive insurance.
In last years, when a client's investment assets exceed EUR 50 000, the client can cancel the insurance altogether and avoid paying for the insurance at the time when it is the most expensive. This is what the chart would look like.
The blue line shows the development of the investment value over time. The orange line shows the sum insured, which gradually decreases from EUR 50 000 to EUR 0. The grey line shows the cumulative value of the investment and the amount of the sum insured, the total coverage.
As can be seen in the chart, the total coverage will never fall below EUR 50,000 and the client will be covered to at least the same extent or even more compared to only having term life insurance.
Note: All data related to the historical development of Finax portfolios have been modelled and were created on the basis of past-modelling of the data. The method of modelling historical performance is described in the article How do we model the historical development of Finax portfolios. Past performance is no guarantee of future returns and your investment may result in a loss. Find out what risks you are taking when investing.
Please also note that in the event of a decline in your equity portfolio, your total asset coverage may be lower than EUR 50,000.
The modelled development of the investment takes into account the average expected appreciation of our robo-advisor algorithms. The investment value may fluctuate over time, so it might not always correspond to the projected amount, it may be lower or higher, so the total coverage may also vary. In case of insurance from a competing insurer, the insurance coverage itself is always the same.
Summary of the results
In an average insurance company, a client would end up paying EUR 11 980 in premiums over 45 years. If they died, the insurance company would pay the beneficiary the sum insured, provided that the death did not occur in circumstance not covered by the exclusions.
In the event that the insurance has not been claimed, at the age of 65, the client will be left with nothing, no assets. Almost 12 thousand euros paid for an insurance product to cover the risk of death in the sum insured of 50 000 euros during life.
On the other hand, with insurance through Finax, they would have end up with approximately EUR 88 750 in assets after 45 years. While throughout the investment duration, the sum insured and their assets combined will make up total coverage. For the same payments, they will be left at the end of the horizon with more than 7 times the amount they had paid for premiums and savings combined. This is well worth it.
Moreover, their assets are only theirs. No exclusions apply to them. If they die as a result of a terrorist attack or as a result of alcohol overdose, no one will have access to their assets in Finax.
You can terminate your insurance with Finax at any time and renew it at a later date. If you terminate your insurance with a regular insurance company, you will never be insured for the same price ever again. Here's a breakdown of insurance prices by age, if you were to get insured today up to age of 65.
Just note that the data in the table cannot be exactly compared, as if you join in as a 30-year-old, with an average insurance company you will pay the same amount €331,74 throughout the duration of 35 years, whereas with Finax the price will increase over time. In the end, you will pay significantly less.
To showcase the benefits of concluding an insurance contract for older people, we've made a table of the approximate assets you'll be able to build up thanks to the amount saved on premiums.
This simple example perfectly illustrates how much cheaper and flexible our insurance offer is. The example is no recommendation on how you should proceed, rather only a demonstration of what can be achieved for the same amount of money and how more effective can risk coverage be, when it is deemed necessary.