Currently, traditional insurance products are familiar for protecting customers against unforeseen risks in life. Therefore, joint life insurance has gained popularity due to its flexibility, benefits, and safety during usage. Joint life insurance helps customers supplement disciplined savings goals and efficient investments, ensuring safety.
1. What is Joint Life Insurance?
Joint life insurance can be understood as a life insurance product in which insurance premiums and benefits are separated between the risk insurance part and the investment part. Accordingly, the policyholder has flexibility in determining insurance premiums and coverage amounts as agreed in the insurance contract. In simple terms, joint life insurance is a new form of familiar life insurance products in the market.
The cost and benefits of joint life insurance are divided into two parts: risk insurance and investment. Additionally, investment returns are determined based on the actual business performance of the company, but they will not fall below the minimum investment rate specified in the insurance contract. Therefore, the insurance coverage amount will be flexible based on the agreement in the insurance contract. Thus, joint life insurance is a lifelong life insurance and investment product.
2. Regulations on Joint Life Insurance Products:
2.1. Some Characteristics of Joint Life Insurance:
Which specifies regulations on joint life insurance and the implementation of joint life insurance, the joint life insurance product has the following characteristics:
- The structure of insurance premiums and benefits of joint life insurance is separated between risk insurance and investment. Thus, the policyholder is flexible in determining insurance premiums and coverage amounts as agreed in the insurance contract.
The insurance premium to be paid is divided into two parts: risk insurance premium covering death, disability, etc., and an investment premium. In addition to the insurance coverage, policyholders can also pay an additional investment premium, but it should not exceed 5 times the insurance amount per year.
Similarly, the benefits of joint life insurance are clearly separated between the rights of the risk premium and the rights of the investment premium. Thus, the benefits of insurance are divided into risk insurance benefits (the amount the customer receives when facing risks such as death, permanent disability, etc.) and investment benefits (benefits received from the investment premium for investment purposes).
- The policyholder enjoys the entire investment results from the joint fund of the insurance company, but not less than the minimum investment rate committed by the insurance company in the insurance contract.
Thus, the investment results that customers enjoy will depend on the actual investment results of the joint fund implemented by the insurance company. Therefore, the insurance company must notify customers of the activities of the joint fund according to regulations. However, to reduce the investment risk borne by customers, the insurance company must commit to a minimum investment interest rate that customers will receive as specified in the joint life insurance contract.
- The insurance company receives insurance premiums paid by the policyholder as agreed in the insurance contract.
Thus, the insurance company will receive premiums paid by the policyholder as agreed in the insurance contract, such as initial fees, contract management fees, joint fund management fees, fees collected when customers cancel the contract, etc. In addition, customers must be clearly informed about the fees that the insurance company will charge and the collection methods.
From these characteristics of joint life insurance, it can be seen that compared to traditional life insurance forms, joint life insurance is highly appreciated by users for its flexibility, profitability, and customer benefits.
2.2. Regulations on Implementing Joint Life Insurance:
For the implementation of joint life insurance, a joint fund must be established first. This is understood as a fund formed from the insurance premiums of joint life insurance contracts and belongs to the contract owner’s fund. The assets of the joint fund are undivided and determined collectively for all linked insurance contracts.
Not all companies are allowed to implement joint life insurance. To deploy joint life insurance products, companies must meet certain conditions according to Article 4 of Circular No. 52/2016/TT-BTC, including the following conditions:
- The solvency margin of the insurance company must be greater than the minimum solvency margin by 100 billion VND.
- The insurance company must have an appropriate information technology system to manage and control the joint fund cautiously and efficiently.
- The insurance product of the company must be approved by the Ministry of Finance as regulated.
Additionally, regarding the benefits of risk insurance, the insurance company and the policyholder agree on risk insurance benefits in the insurance contract but must ensure that the minimum insurance amount is not lower than 5 times the regular insurance premium for the first year for regularly paid contracts or not lower than 125% of the insurance premium for single-payment contracts.
Furthermore, the insurance company is only allowed to calculate approved fees such as initial fees, risk insurance fees, contract management fees, joint fund management fees, and fees for contract cancellations. Any other fees (if any) must be approved in writing by the Ministry of Finance as per legal regulations.
- Approval of the company’s joint life insurance product:
To deploy a joint life insurance product, the insurance company must submit an application for approval along with a deployment plan, including the following contents:
- A summary of the main content of the joint life insurance product that the company plans to deploy.
- The investment policy that the insurance company plans to apply to assets in the joint fund.
- The allocation basis of insurance premiums and expenses.
- Training content for insurance agents about the joint life insurance product that the company plans to deploy.
- Information about experts in calculations, investment experts, and other external consulting services related to the joint life insurance product.
- Information about the qualifications, capabilities, and professional experience of officials responsible for insurance investment.
- A written commitment with a detailed explanation of how the insurance company has met all the conditions for deploying joint life insurance according to regulations.
The Ministry of Finance has the authority to approve the company’s joint life insurance product.
Furthermore, according to legal regulations, insurance companies are responsible for accurately, fully, and timely disclosing all relevant information about signed joint life insurance contracts to policyholders. The information provided by insurance companies to policyholders must be consistent with the joint life insurance product approved by the Ministry of Finance.
Similarly, policyholders have the right to request insurance companies to provide complete information and explanations about insurance contract conditions, terms, and to understand the related risks when entering into a joint life insurance contract.
The joint life insurance contract must comply with legal regulations and include full information about investment policies, objectives, asset investment structure of the joint fund; specific ratios, amounts, and maximum amounts of fees related to the joint life insurance contract; the allocation ratio of insurance fees for investment in the joint fund; the method of determining investment benefits from the joint fund, and options for policyholders to change risk benefits or the ratio of insurance fees allocated to the joint fund and the premium payment extension period.
The Ministry of Finance also stipulates that insurance companies must always maintain the ability to pay according to the current legal regulations. Accordingly, the minimum solvency margin for joint life insurance contracts must be 4% of the business reserve plus 0.3% of the risk-bearing insurance amount, and the insurance company’s solvency margin must be higher than the minimum solvency margin of 100 billion VND.
2.3. Fees Payable by Policyholders:
According to legal regulations, insurance companies are only allowed to calculate the following fees:
- Initial fees: These are all fees that the insurance company is allowed to deduct before the insurance fees are allocated to the joint fund.
- Risk insurance fees: These are fees used to pay for risk insurance benefits as committed in the insurance contract.
- Contract management fees: These are fees to offset costs related to maintaining the insurance contract and providing relevant information to the policyholder.
- Fund management fees: These are fees used to pay for investment activities and manage the joint fund. In any case, the investment interest rate paid to policyholders should not be lower than the minimum investment interest rate committed in the insurance contract.
Insurance companies are responsible for accurately, fairly, and reasonably calculating the above fees to ensure they are appropriate for the technical basis of the approved joint life insurance product. The insurance company must notify the policyholder in writing about the calculated fees when entering into the insurance contract.
The joint life insurance contract must clearly specify the fees that policyholders must pay, including the maximum amounts applicable to policyholders. Insurance companies must publicly disclose all types of fees and maximum amounts applicable to policyholders in product introduction documents and sales illustrative documents.
During the implementation of the joint life insurance contract and within the specified maximum limit in the insurance contract, insurance companies can change the fee ratios after notifying and agreeing with the policyholder in writing at least three (03) months before the official fee change date.
Cre: Harley Taylor/protectyourwealth.ca
