Two major guaranties in life insurance policies: death benefit and retirement benefit
A life insurance contract can contain two guaranties:
- A death benefit : amount that is paid when the policyholder dies before the term of his contract ;
- A retirement benefit : amount that is paid at the end date of the contract (mostly at age 65) if the policyholder is still alive at that moment.
1) Life insurance with retirement benefit
Saving money for your pension
In countries such as the United States and the United Kingdom where a state pension (first pillar) does not provide sufficient retirement income, private pension saving plans are very common. However, in countries where the first pillar is very present, this practice is less widespread.
However, even in those countries, an increasing number of people are starting to save money for their old days and more and more companies offer additional retirement saving plans to their employees. There are two major reasons why people do so: on the one hand, they are afraid that the State, unable to face up to the ageing of the population, will not be in a position to fulfil its commitments, and on the other hand they want to benefit from the tax incentives associated to private saving plans.
2 key periods for retirement plans
This type of insurance pays out an amount if the policyholder in still alive at the term of his insurance contract (mostly at age 65). Retirement plans know two key periods: accumulation and decumulation. During the accumulation period, you save money so you can maintain an acceptable lifestyle after you retire. The decumulation period starts from the moment you retire and consists in living thanks to the capital you have saved during your working life.
4 main types of life insurance policies with retirement benefit
The life insurances providing retirement benefit can be split up in 4 main categories:
- Traditional life insurance policies,
- Univiersal life insurance policies,
- Unit linked insurance policies,
- Variable annuities and products with actuarial and financial annuities.
2) Life Insurance with Death Benefit
This type of life insurance foresees the payment of an amount in case the policyholder dies before the term of his contract.
It can be a simple insurance that pays a fixed amount in the event the insured dies. In this way, his family will be protected after his death. This type of life insurance can be permanent (no end term, helps the relatives to pay the funeral or the succession rights) or temporary (fixed end term, aims to protect the policyholder’s family if he is the only source of income).
A common type of term life insurance is the mortgage balance due insurance which assures that the mortgage will be paid off according to a previously fixed percentage in the event the insured dies.
