LIFE INSURANCE POLICY.
WHAT IS LIFE INSURANCE POLICY?
Life insurance policies are contracts between private citizens and insurance companies that obligate the latter to settle a beneficiary with a sum or in the form of an annuity should something happen in connection with the policyholder’s life. The insurance market offers a rather vast scenario made up of different products useful to meet a little bit of all needs. Anyone wishing to take advantage of such a policy will therefore have to sign a contract with a life insurance provider and pay that company a premium. These instruments are to be considered important in terms of providing for one’s family, as well as a potential form of supplementary retirement savings. A life insurance policy thus wants the insurance company to undertake to pay out a lump sum (either in a lump sum or through an annuity) consequent to a life-related event, such as death or even the insured’s existence on a given date, against payment of a premium.
Such a policy should be considered an important tool to make up for the economic problems resulting from the death of a member of the household, especially when the insured was a major contributor to the economic balance of the family itself. Not only that, a life insurance policy is also to be understood as a useful tool for securing a supplementary pension.
HOW DOES THE LIFE INSURANCE POLICY WORK?
Four different figures play an important role in the contract governing a life insurance policy: policyholder, insurer, insured and beneficiary.
The contractor is the one who in fact signs the contract and thus must undertake to honor it, what is important is that the contractor can be either a natural person as well as a legal entity. The insurer must be a company that enjoys authorization from the Ministry of Industry to operate specifically in the “life” field and is in fact the entity that collects the insurance premium from the policyholder and then undertakes in turn to settle it within the stipulated terms. The insured, on the other hand, is the person whose life is explicitly referred to in the contract made between policyholder and insurer. Finally, the beneficiary is the one who receives the settlement stipulated in the contract upon the occurrence of the conditions stipulated in the life insurance policy.
WHAT ARE THE TYPES OF LIFE INSURANCE POLICIES?
Three main types of life insurance policies can be identified:
- blended life policies settle the beneficiary in the event of both the death of the insured and the life of the insured, and if the insured was alive at the expiration of the contract taken out, the lump sum provided can also be paid out by the insurance company as a life annuity;
- life insurance policies are characterized by the fact that a lump sum or supplementary pension is paid out to the beneficiary upon maturity. In this case, the insurance does not provide any coverage in the event of the death of the insured; if this were to happen during the policy’s term, the heirs of the deceased would get the accumulation of premiums paid up to the time of death once revalued according to the return they had as a result of the asset management carried out by the insurance company;
- death policies by their nature guarantee the payment of a lump sum to the beneficiary named in the policy in the event of the insured’s death. These policies do not provide for disbursements of any kind in the event that the insured is alive when the policy expires, so they are to be considered useful for the economic protection of beneficiaries but not for supplementary pension purposes.
WHAT IS THE BLENDED LIFE POLICY?
This type of life insurance provides, like the others, a lump sum or even an annuity to the beneficiaries named in the contract, but in addition to the other life insurance policies it may provide additional guarantees. The premium paid as decided at the time of underwriting thus contains a portion devoted to the actual life insurance policy, which may be subject to revaluation, and a portion instead devoted to the other forms of supplementary security chosen. Regarding the lump sum accrued under the life insurance policy, it can be paid out in the form of a life annuity, which will then be proportional to the premiums paid as well as the age of the insured at the time the annuity begins. The payout may also be in the form of a full lump sum at the policy maturity, and in this case the insured may decide to postpone the time of payout, thus continuing to enjoy capital appreciation.
HOW DO BLENDED POLICIES WORK?
Blended life insurance policies are special forms of life insurance that combine the common features of a life insurance policy, that is, a lump sum or annuity available, with one or more supplementary conditions that are usually all aimed at providing some peace of mind for the insured and family members. Additional risks considered most often include illness, accident, disability etc.
This type of insurance offers a wide range of possibilities to policyholders, thanks to considerable flexibility in relation to the age of the insured, his or her economic condition including the possibility of changing the duration of the contract itself during its term. Unit-linked policies stipulate that premiums are, in fact, units in an investment fund; the principal is then calculated by multiplying the number of units acquired over time with their value at the time of calculation. These types of policies represent different risk margins from the others because they usually do not require that a minimum capital or particular returns be guaranteed.
As the name implies, the capital returned is intimately linked to the performance of equities or investment funds; these are, therefore, policies whose performance depends on the performance of the particular benchmark index. In this case, there are policies characterized by a guaranteed minimum return, which protects the underwriter if at the expiration of the insurance contract the index shows a negative trend.
FOLLOW UP SOME CLARIFYING QUESTIONS.
The policyholder is the one who subscribes to the policy, the one who makes the payments and is the owner of the rights and obligations under the contract. He is essentially the “owner” of the contract, the only one therefore who can decide on any changes to be made.
The policyholder can decide to transfer the ownership (contraenza) of the policy to someone else (natural or legal person), consequently the policyholder can be changed.
The ‘insured is the person on whose head the policy is created. In most cases, the policyholder and the insured coincide, so in essence you have one person signing a contract by having it built on his or her age and sex characteristics.
In most policies there is only one policyholder (rare are the cases where there are two heads, especially for Unit Linked Policies), and it is the only figure in the policy that can never be changed.
The beneficiary is the person entitled to the benefits deducted in the contract. There can be multiple beneficiaries (e.g., the three children of a parent who contracted as a policyholder) and can be changed by written notice from the policyholder, even multiple times. In addition, if the contractor wishes, he or she can make the beneficiaries “irrevocable,” that is, make them unchangeable.
In the case of a life insurance policy in the event of death of the insured before the maturity date chosen and stipulated in the policy, the policyholder and the insured may be two separate persons. However, it is necessary for the policyholder, i.e., the person who takes out the policy and pays the premiums, to document to the company the written consent of the insured to take out the policy (Civil Code Art. 1919).
Yes. It is possible at any time, including during the term of the contract, to revoke one or more of the previously named beneficiaries.
Under current legislation, a life insurance policy can be taken out only after reaching the age of 18.
Index Linked policies are contracts in which the size of the insured capital depends on the value of a stock index or other reference value. Unit Linked policies are contracts in which the size of the insured capital depends on the value of the investment fund shares in which the premiums paid are invested.
The 2,5% tax on life insurance premiums is abolished. However, the tax deductibility of the premiums paid (today 19% of the premium paid is deductible, but this percentage can be revised annually by the Budget Law) is limited to policies that provide coverage for the risks: death, loss of self-sufficiency, accident and disability with a 5% deductible.
The term guaranteed minimum interest rate means the minimum percentage recognized annually by the company on the amount invested.
Unit Linked policies usually are issued in the “whole life” formula, meaning that they do not have a specific maturity date. This allows the policyholder to redeem the principal when he or she sees fit, without running the risk of having to redeem at times of market weakness.
Temporary is defined as those death insurances that guarantee the payment of a lump sum only if the insured dies within a predetermined period of time. Premiums are paid for the life of the contract or, at most, until the death of the insured and are still acquired by the company whether or not the death of the insured occurs. The insurer’s benefit is uncertain, as the person may or may not die during the period under consideration.
Life insurance policies are seizable and unseizable. Pursuant to Art. 1923 of the Civil Code, amounts paid by the Company to the policyholder or beneficiary are not subject to enforcement or precautionary action. This means that even if the contractor or beneficiary goes bankrupt, these sums are not distributed among creditors.
- Tax deduction of premiums: on the premiums paid for “pure risk” life insurance, meaning insurance having as its exclusive object the risk of death, permanent disability (to an extent of not less than 5%) or non-self-sufficiency in the performance of the acts of daily living, up to a maximum of € 1,291.14 a tax deduction for IRPEF purposes is granted annually to the policyholder to the extent of 19% of the premiums themselves.
- Taxation of insured sums: sums paid in dependence of life insurance are exempt from IRPEF and inheritance tax, if paid in case of death of the insured, in case of permanent disability or in case of non-self-sufficiency in the performance of acts of daily living.
If paid in the form of a lump sum, at the end of the deferment or by surrender, they are subject to withholding tax to the extent of 12,5% of the difference between the amount due and the amount of premiums paid (net of any component indicated by the Company for risk coverage).
- Capital received in the course of business activities (paid by the Company before tax charges) is included in business income for the portion related to the difference between capital received and premiums paid. Annuity installments, limited to the amount obtained as the difference between the annuity installment paid out and the corresponding installment without taking into account financial returns accruing after the date on which the right to annuity payment arises, constitute capital income subject to substitute income tax at the rate of 12,50%.
Yes, provided that the insured gives written consent to its conclusion by signing the contract.