Life Insurance policies provide compensation, a determined or a determinable economic allowance, in case of death (or survival for certain kind of policies) of the policyholder. The policies regarding survival aim to long-term savings and investment, other policies cover only death. A third kind of Life Insurance policies is a mixture between the formerly explained policies.
The juridical figures of Life Insurance:
Life Insurance conditions
The policyholder pays the premium periodically or singularly to the insurance company. The insurer promises to pay a certain amount periodically (term life insurance or whole life coverage) or singularly in case of death of the insured during the contracted period, or in case of survival of the insured at the end of the established period.
Types of Life Insurance Policies as savings
In case of a life insurance policy as a tool for savings, the premium payed by the policy owner is deposited to a separate and dedicated management by the insurance company. At the end of the contract, the beneficiary receives the deposited premium(s) alone with the gains obtained from the separate deposit, minus the costs of management and fees.
Insurance companies offer financial products, riskier investments that do not go into the separate management: the Unit Linked, managed in internal funds or common funds of investments (Open-end Collective Investment), the Index Linked, tied to the stock market flows, real estate and raw materials’ stocks. Finally, Personal Pension Funds are particular life insurance policies, dedicated to the creation of an addition personal pension.
Exemption from seizure or requisition of Life Insurance Policies
According the Article 1923 of the Civil Code, the amount derived by life insurance policies are exempted from seizure or requisition, and in case of early death, they are not part of the inheritance.
Illness and Accident Insurance policies protect the insured against the exceptional event of particular illness (in general, any pathological state, organism or organ alteration) and accident, influencing the physical integrity due to a violent, external and sudden cause. These policies help the insured to face the possible negative economic consequences. They can cover, according to the contract, medical expenses, daily allowance, compensation in case of permanent disability.
Mixed Insurance Policies protect the insured in case of survival or death: these policies offer to pay the beneficiary in case the insured reaches a certain age, or in case of death before he or she reaches the established age.
The owner can protect the economic value of his or her house and its content by subscribing a Property Insurance policy. Among the most common variables of this kind of insurance, these contracts can include also insurance against fire, theft, atmospheric events and electrical phenomena. They can also include a civil responsibility clause in case of damages, caused by the property to third parties.
Auto Insurance policies cover the civil responsibility related to driving motor vehicles, compulsory according to the Italian law since 1969. They protect the insured from liability for the legal responsibility to other persons or property damages, as well as medical coverage for the driver, the passengers and third parties involved, within the limits of the coverage cap. The contract usually lasts a year and starts from the 24:00 of the day when the premium is payed.
Attached to the Auto Insurance policy, other clauses can be attached, such in case of damages from fire, theft, storms and damage (All-Risk Insurance), independently from the actual responsibility of the driver (if not stated otherwise in the contract),
Commercial General Liability Insurance policies cover different events related to a specific activity or business. For example, a company specialised in excavation has damaged an electric conduit during a session. The policy covers the company against possible damage compensation from the conduit’s owner and third parties who suffered from the electrical interruption.
This policy is also related to the civil responsibility of the business towards its employees and construction workers, regularly insured with INAIL (National Institute for Insurance against Working Accidents) in case of accidents. For example, a worker is injured due to the blow of a mal-functioning boiler. INAIL pays the worker and it turns to the company for the responsibility of boiler itself. The policy protects the company, excluding some degree of fault (in case of grave negligence or wilful misconduct). The single policies can also cover illness due to the job (chemical or physical nature).
According to the Articles 173 and 174 of the Codes of Insurance, the insured is protected from the legal expenses that may rise in case of involvement in judicial and extra-judicial instances. If he or she requires legal assistance, the insured can choose the lawyer if the contract explicitly allows it.
The Italian Pension system is composed of three main pillars: the first pillar is the mandatory occupational benefit, the second is the complementary pension schemes on collective base and the last one is the complementary pension schemes on individual basis.
1. Mandatory Occupational Benefit
The Mandatory Occupational Benefit is managed in Italy by the National Institution for Social Welfare, and it is based on a allocation system: with the contributions made by the active workers, the inactive workers receive the pension. If the number of retired workers is higher than the active workforce, the system suffers critical deficits.
Until 1995, the calculation of the pension was based on a remunerative system: the pension was based on the average of contribution and income taken in the last years of work, multiplied by the years of contribution and a certain variable. From 1995, the Italian Pension program passed on to a contributive system: the calculation of the pension is based on the effective deposited amount during one’s work-life, multiplied for a determined coefficient.
2. Complementary Pension Schemes
Complementary Pension Schemes, additional to the one compulsory by law, can be generated through pension funds, associative organism constituted as legal entities and managed by insurance companies, banks, intermediates and savings management companies. The issuer pays a certain amount freely to the chosen funds in order to receive them back during retirement. The right to complementary pension schemes can be exercised after five years of subscription to the mandatory occupational benefit, and only if the person is eligible to receive the pension. Before the term for the public pension, it is possible to retrieve part of the contributions made to the pension fund, in particular occasions and after the person has been on the mandatory system for eight years.
Closed Pension Funds are reserved to those people who have common features, such as same employer, same job category or territorial affinity. They are also called Negotiable Pension Funds because they start from acts of negotiation among social parties, as contracts, collective or labour agreements, companies regulations, regional accords and so on. These funds can be joined individually and freely, but only by those who belong into the defined collectivity. The management of the fund is allocated to an external professional investor, such as a bank or an insurance company.
Open Pension Funds, on the other hand, are open to anyone. They can be joined either individually or collectively. These funds are created and managed by the same entity, such as a bank, an insurance company, an intermediate or savings management company. The authority who monitors these funds is called the Commission of Security of Pension Funds (COVIP).
Personal Pension Funds were introduced by a decree in 2000, in force since 2001. They are particular Life Insurance policies, established and managed only by insurance companies, and they can be joined only individually. The performance of these funds is the same as any other pension funds, with the sole difference in the management of the resources.
Personal Pension Funds can be revalued or of the Unit Linked kind. The former guarantees a refund of the capital and in certain occasion, a minimum gain. The capital in these funds are managed separately from the other capital of the company, and as the Life Insurance policies, these funds are exempted from seizure and requisition. The Personal Pension Funds of the Unit Linked kind are invested in internal funds of the company or in a common fund. a minimum gain is not guaranteed, but it is possible to choose different lines of management, according to the personal attitude towards risk.
Extract from the Glossary: “Parole di Economia e Finanza” © Global Thinking Foundation 2016