What is life insurance in gold?

Exchange rate fluctuations and high inflation threaten to devalue endowment life insurance. Taking advantage of the dismay of the townsfolk, the insurers offered them the opportunity to save in the hardest currency – in gold. How risky are such insurances and how much profit can they bring to an investor?

Probably, with such inflation, it makes no sense to buy life insurance or join a pension fund. But you still need to accumulate pension capital, according to Life Insurance Sector Outlook. I heard that insurers offered a new product – life insurance in gold. Its price changes depending on the growth of gold prices in the world markets. So I’m thinking now: is it worth buying such a policy, or is it better to continue to keep money on deposit?

Insurance denominated in gold is a new feature of the Ukrainian life insurance market. Having chosen “yellow metal” as the insurance currency, the investor makes payments to the company in hryvnias at the current gold rate set by the National Bank.

The insurer, in turn, buys the precious metal with the client’s money, placing it on a “gold” deposit in the bank. Thus, by depositing money over a period of 10-20 years, the insured can acquire the equivalent of a rather weighty ingot, and possibly several.

At the expiration of the contract, the company pays him the “gold” equivalent, that is, the amount that she will be able to earn by selling the metal at the rate in force at the time of the policy expiration.

In fact, life insurance in gold is an alternative to the “gold” deposit. But at the same time, the client also receives additional insurance protection, as well as benefits in the form of a tax credit.

On the one hand, the product seems interesting, because over the past 10 years, gold has grown in price by more than 200%. On the other hand, even the insurers themselves admit that the purchase of “golden” policies is associated with certain risks.

Firstly, the profitability of “gold” deposits in banks today is quite low and averages 1-5% per annum. And this means that under such insurance programs it is almost impossible to guarantee customers the usual yield of 4% per annum, especially for 10 years or more. In this case, only insurance companies affiliated with banks may be in the most advantageous position. Such insurers can count on both good interest on “gold” deposits and a favorable rate for buying/selling metal. In the best case, the company can guarantee the client 2-3% of income, or even zero.

Therefore, policyholders who take the risk of buying such programs can only rely on an increase in the price of the asset itself on the world market. However, analysts assure that in the long term to predict the dynamics of prices for banking metal is a very thankless task.

After all, the price of gold is subject to strong fluctuations and depends on many factors. This is the economic situation in the countries of Europe, America and Asia, and the cross rates of the leading foreign currencies (US dollar, euro), lowering / raising the discount rate in the central banks of Europe, America, Asia, prices for oil and other natural resources. The banking metals market in Ukraine reflects the situation in the global precious metals markets – if the price fluctuates on the world markets, the same happens in Ukraine.

In the second half of the year, experts expect the “golden rally” to resume again. In their opinion, again, a high level of inflation and a further weakening of the dollar should become an incentive for further growth in prices for the precious metal.

However, insurers leave customers the opportunity in the event of a sharp drop in gold prices to convert the insurance policy into US or Euro currency, as well as into the hryvnia.

But you need to be prepared for the fact that, having made a decision today to convert “metal” savings into monetary units, it is impossible to do it right tomorrow. The currency change procedure takes place only on a quarterly basis.

Life insurance companies have the right to buy another foreign exchange asset after submitting reports to the Financial Services Commission. And only then can she apply to an authorized bank to purchase the appropriate currency equivalent.

In addition, all costs associated with the sale of gold and the purchase of foreign currency – payment of contributions to the pension fund, commissions to the bank, are borne by the client. “As a result, the insured may lose about 4% of the amount of reserves, which will be translated into another currency.

And this means that with a large influx of insurers applying for “golden” policies, the company simply will not be able to satisfy everyone. Otherwise, having exhausted the limit of 10%, the insurance company will be forced to place reserves in other assets, thus violating the article of the law on the correspondence of the insurance currency to the reserve currency.

As with any life insurance, “on the way out” the investor will have to pay 15% of the income received to the insurer (for doing business). Plus the notorious income tax – the same 15% of 60% of income.

Of course, part of the insurance payments can be returned by issuing a tax credit, but it still turns out that the costs of the “golden” policy involve too much, and the profitability is by no means dizzying. It is much easier to take the money to the bank on the same “gold” deposit and not suffer. Neither tax nor other fees are waived from “gold” depositors. The only benefit of “golden” insurance is protection (payment of the sum insured) in case of death or disability of the investor. However, how much gold will cost on this “rainy day” is unknown …

Should you buy life insurance in gold?