A person’s financial life goes through ups and downs, including unforeseen events such as illness and accidents.
Anticipating these events is indispensable and crucial for future financial planning.
Taking out life insurance is a good way to protect you against these events, because it offers peace of mind and the certainty that money will be available even in a disadvantaged situation.
What is life insurance?
It is a personal financial stability protection instrument provided by an accredited management company, in this case a life insurance company.
In Chile, life insurance companies are supervised by the Financial Market Commission (CMF).
Why take out life insurance?
Life insurance was designed to meet the following objectives, in the event of the death or disability of the insured:
- To economically cover the insured against the risk of personal and/or health accidents.
- Protect loved ones and family assets.
- To pay credits in case the insured has contracted a financial debt.
- Paying partners or creditors of the insured (in the case of a commercial company, for example).
- Guarantee an income for the insured or his beneficiaries.
Who can take out life insurance?
Anyone over the age of 18 can take out insurance, either individually or collectively (in the latter case, it is taken out by a company for the benefit of its employees).
Life insurance is voluntary, except for the type of lien insurance associated with mortgage loans, which is obligatory.
Who is the beneficiary of this type of insurance?
Any person can be a beneficiary as indicated by the insured when taking out the policy. There is no need for a family or conjugal relationship.
What types of life insurance are there?
According to the Association de Aseguradores de Chile (AACH), there are the following formats:
Whole Life: its coverage extends until the death of the insured, that is to say, the payment of capital is guaranteed immediately after the insured dies, regardless of the date when his death occurred, whether due to illness or accident. The beneficiary (ies) enrolled in the policy will receive compensation as soon as the death is credited.
- Temporary Life: Like the Whole Life type, the capital is payable to the beneficiaries.
- Beneficiaries immediately after the insured dies of natural causes, suffers a fatal accident or an accidental disability.However, the incident must occur for a specified period of time (before the end of the period agreed as the duration of the insurance). If the insured lives for when this stipulated term expires, the insurance is cancelled.
- Family Protection: protects all members of the family group, whether due to death or other risks such as disability or dismemberment of the insured if contained in the policy. Like Temporary Life, its duration is for a defined period.
- Disability or Invalidity: covers the insured’s disability because his physical or intellectual capacity is weakened by illness or accident. The payment of the indemnity corresponds to the payment of a capital sum or an annuity, as provided for in the policy. Its duration is for a defined period.
- Assistance: covers services, assistance or expenses generated by the death of the insured person of the policy. Its duration is for a defined period.
What does life insurance provide?
Usually, the offer of this type of financial service includes:
It offers Coverage in the event of death (natural or accidental) or temporary or permanent disability. This protection will depend on the needs of the user and the type of insurance.
- Savings (in this case, the insured can redeem the corresponding money after a certain period of time)
- Pension (life insurance with APV)
Premium: the monetary amount or price of insurance that the insured agrees to pay for a given period and term (the frequency is usually monthly).
Policy: this is the contract by which the insurance company commits itself to comply with the committed coverage.
What are the requirements for life insurance?
As explained by the financial regulator (CMF):
The minimum age (18 years) and a maximum age of the insured to enter the insurance and it will depend on the insurance company and the type of insurance.
Maximum age of the insured to provide coverage (also depends on the company and the type of insurance).
A statement of health before joining the policy, normally, the company requests a set of basic and additional medical examinations (depending on the contractor’s history).
What does life policy include?
Illnesses and types of accidents insured, as well as their intensity and duration.
The beneficiaries (loved ones, partners, creditors, etc.) indicated by the insured will be the persons assigned to receive the benefits of the policy. If there are no designated beneficiaries, the legal heirs are the ones who receive the capital.
How to collect life insurance?
Generally, the beneficiaries must approach the insurance company with documents proving the death or judicially declared incapacity of the insured.
However, if there are no beneficiaries assigned or it is unknown whether the person has contracted insurance, the CMF must be formally consulted. Consult the procedure in the Insurance Consultation System here.
When is it not possible to take out a life insurance policy?
Generally, initially life insurance companies do not grant this instrument when the person contracts it to protect themselves from:
- Extreme and risky activities or sports.
- Explosives manipulation.
- Working at heights.
- Diseases or pre-existing health conditions.
- Injuries or diseases caused by war, rebellion, revolution, etc.
- Suicide or self-inflicted injuries.
However, some companies make exceptions and allow access to this service for a specific premium.
What precautions must be taken to take life insurance?
Life insurance policies are standard and regulated, which is why the CMF recommends that individuals who are considering hiring this instrument take the following precautions:
- Quote more than one insurance before hiring
- Read well and understand the policy before signing
- If you have questions about the general conditions of the contract, check the CMF policy deposit with all official versions of this document.
- Corroborate how and under what conditions the insurance is renewed.
- Confirm how the cost of the insurance will be readjusted in case of renewal.
- Ratify the period of coverage and validity of the instrument.
- Consult in which cases the insurance will not pay the capital to the beneficiaries.
- See all the requirements to collect the insurance.
Reaching a certain age, financing the future of the family or protecting oneself in case of illness or accident are some of the reasons why a person takes out life insurance.
Rather than the cost, the decision is based primarily on the person’s stage of life and the individual circumstances surrounding the person.