Despite guaranteeing financial relief in the event of death or disability, life insurance is still rarely taken out in Brazil. It is estimated that only 17% of Brazilians have life insurance, while among North Americans this percentage rises to about 70% of the population. One of the product’s barriers, especially among younger people, is having to pay a monthly fee for something that they will only use later on. Furthermore, if the insured fails to pay for one month, the product may be cancelled.
Popular among North Americans, universal life insurance can help democratize access by combining a private pension plan and life insurance into a single product, with the advantage of being redeemable.
Unlike traditional insurance, if there is no claim (an occurrence that leads the customer to trigger insurance) , universal life allows you to receive the accumulated insured capital. In addition, it is also possible to use the amounts for premium payments without losing or reducing coverage.
The product also has a risk and accumulation component. The client pays something similar to a pension plan and the insurer invests in an investment fund to pay the beneficiaries in case of death or for redemption by the client, for example.
“The product has the flexibility to combine one insured amount with another, change the duration of the contract throughout its life, because at a given moment you may have more need for life insurance than another for accumulation”, points out lawyer Laura Pelegrini, from the insurance and reinsurance area at Demarest law firm.
Despite already having a regulation by Susep (Superintendence of Private Insurance) for the product, commercialization in the Brazilian market comes up against the tax issue. As it is a mix of the same product — accumulated capital, venture capital and life insurance —, the market is waiting for the Federal Revenue to decide how taxation will be applied to start sales here.
What is universal life insurance ?
“Universal life insurance is a combination of financial planning , life insurance and private pension”, explains Roberto Teixeira, partner and head of security at XP.Inc.
The customer who purchases the product can accumulate resources, which are invested by the insurer, and still has life insurance included. Once the contract term expires, he can choose to redeem the amount or continue contributing to increase equity.
The value can be used in any way the policyholder wants — he can redeem it at the end of the period or he can use the accumulated capital to pay the premium (amount that the policyholder pays to the insurer)
What are the differences?
The difference to traditional life insurance is that the insured capital is composed of two parts: insured risk capital and insured accumulation capital, as explained by Susep (Superintendence of Private Insurance).
“The first is equivalent to an insurance structured under the PAYG financial system (traditional life insurance). The second refers to the accumulated balance in the Mathematical Provision for Benefits to be Granted (PMBAC) [similar to a VGBL]. In the event of a claim, the sum of capital is paid to the beneficiary of universal life insurance ”, explains, in a note, the agency.
“On the other hand, if the insured survives the contracted period, only the insured accumulation capital will be paid. That is, even if it consists of two installments, there is no need to talk about the existence of two different coverages”, adds the note.
Industry expansion?
Susep points out that the regulation of universal life insurance, through Resolution CNSP nº 344/2016 , was motivated by demand from the supervised market, based on its interest in offering insurance of this nature.
And he believes that, with the publication of the circular (complementary regulation), the product will be another option for consumers and will contribute to the promotion of the insurance culture in Brazil, considering that the directions of Social Security and the country’s economic sector demand products that can serve different purposes. Insurance products need to be increasingly improved, available and accessible.
Advantages to customers
In addition to being able to receive the accumulated insured capital, due to the non-occurrence of the triggering event, universal life allows flexibility in the frequency and amounts of premium payments without losing or reducing coverage, which other types of traditional insurance do not have.
Progress of the project
CNSP Resolution No. 344/2016 provides for the rules and criteria for structuring, marketing and operationalizing universal life insurance. Although the resolution is in effect, for this insurance to be marketed, additional rules and criteria for the functioning and operation of the product still need to be established.
