Analysis of return for investment products

Introduction

In the next pages will be explain exactly what every term stands for and what are the steps for each of them in order to apply. Also, it will be explanations about types and how much a person should invest. In recent years, there has been a steady increase in Romania for those who invest in the private pension fund, life insurance and those who deposit money in bank accounts. (C.Ramanathan, 2016)

Life insurance

The whole idea of insurance has developed on the fact that human life is full of uncertainties and the life of a person itself is very uncertain. Insurance is a co-operative device to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to insure themselves against the risk. (Mishra, 2010)

Coverage under the life insurance policy is effective as soon as the contract comes into existence. The fundamental question, then, is, When does the policy come into existence? The answer hinges on a relatively small detail in the eyes of many insured’s— whether the first premium accompanies the application for insurance. If the application is sent to the insurer without the premium, it is considered an invitation to the insurer to make an offer, which it does by issuing a policy. There is no contract until the applicant has accepted the insurer’s offer, which he or she does by taking the policy and paying the first premium. If the insured should die during the period between making the application and receiving the policy and paying the first premium, no benefits will be paid, for the policy has not yet come into existence. For the most part, this is not the usual procedure. Normally, the premium accompanies the application for insurance. The company acknowledges receipt of the premium with a conditional binding receipt. The typical binding receipt makes the policy effective as of the date of application, provided that the applicant is found to be insurable according to the underwriting rules of the company. If the individual does not meet the company’s underwriting standards, it may offer a rated policy or a policy subject to limitations. This, in effect, represents a counteroffer by the insurer, and the applicant is again in the situation in which he or she may accept or reject the insurer’s offer. A situation might arise in which the underwriter is forced to determine whether a deceased person would have qualified for insurance if he or she had not died. If the applicant would have qualified, then the company is bound to pay the death benefit, since the policy went into effect conditionally at the time of the application. (Fundamentals of risk and insurance)

Study case- AEGON Life Insurance (AEGON Fii Sigur conditii de asigurare, 2017)

AEGON is a life insurance that Banca Transilvania provides for their clients, how wants an insurance of this type. After getting in touch with an agent from the bank, he provided me a brochure with explanations to understand better what they have to offer and what any client should expect.

Definitions

• Secured guaranteed interest: life insurance that includes both protection in case of insured risk, as well as a saving component.

• The anniversary of the insurance contract: the date on which an entire number of years from the date of entry into force of the insurance contract. The first anniversary is considered to be 12 months from the date of entry into force of the contract.

• Insured person: a natural person, a Romanian or foreign national domiciled / residing in Romania, whose life or health insurance is provided by the insurance contract. The Insured cannot change during the term of the contract insurance.

• Insurer: Aegon Towarzystwo Ubezpieczen na Zycie S.A., with its headquarters. Woloska 5, 02-675 Warsaw

• Bank: Banking institution that has entered into an agent contract subordinated to the distributor life insurance products.

• Identification data Bank (subordinated insurance agent): Banca Transilvania S.A., with registered office in

• Beneficiary: natural person, Romanian or foreign citizen with domicile / residence in Romania or person where appropriate, receive, under the terms of the contract or under the law, the insurance indemnity or the benefit of maturity.

• The maturity benefit: the amount owed to the beneficiary at maturity of the insurance contract on condition that the Insured is alive at that time. The maturity benefit is equal to the total reserve amount (including guaranteed interest and profit sharing). If no one has been designated beneficiary in maturity, then the benefit will come to the Insured.

• Assignment: transmission of insurance rights to a credit institution.

• Contractor: natural person, Romanian or foreign national with domicile / residence in Romania or legal person that concludes the insurance contract with the Insurer and who assumes the responsibility to pay insurance premiums at the set deadlines. The Contractor is eligible for this insurance if he has an open account at the bank.

• Cost of insurance: the amount received by the Insurer to cover the risk of death from an accident or illness.

The cost of insurance is deducted:

• Of the reserved value

• At the beginning of the month of insurance

• Every month, when the insured amount for death from accident or illness is greater than the amount of the contract's reserve.

• The cost of the insurance depends on the Insured's age and on the net amount at risk. The net amount at risk is equal to the difference between the sum insured for death from the accident or sickness and the value of the contract reserve.

• The age of the Insured is calculated as the age reached at the start of the insurance year and is maintained unchanged during one year of insurance.

• The date of entry into force of the insurance contract: the date entered in the insurance contract, to which the Insurer's liability begins.

• Maturity date of the insurance contract: the date entered in the insurance contract where it ceases the liability of the Insurer.

• Guaranteed interest for the contract reserve: 2.8% per annum for the first 7 years of insurance and 2% per annum for the remainder of the insurance period.

• Guaranteed interest on the savings reserve: 1.5% per annum for the life of the insurance.

• Insured Event: Future, incidental, possible but uncertain event that underlies the risk insured under which the Insurer owes the insurance indemnity on the basis of the insurance conditions.

Types of Life insurance

• Basic Product Version: Assumes a minimum insured amount of 12,000 lei and a minimum duration of the 20-year insurance contract.

• Premium product variant: it assumes an insured minimum amount of 16,000 lei and a minimum duration of the 16-year insurance contract.

• Extra Product Variant: assumes an insured minimum amount of 30,000 lei and a minimum duration of the 12-year insurance contract.