Commencing with the earliest periods of the very first human social formations, the vital question of life security was predominantly reliant on the unity of one’s family or tribe. The global industrialization and technological advancements elevated the essential life aspect to a whole new level of perception, and in this regard the concept of life security was not an exception. The contemporary understanding human life security implies a predominant linkage with privately purchased security programs widely known in the field of insurance business as Life Insurance.
The primary purpose of life insurance is guaranteeing to compensate a fixed financial entirety to a person or a family on the tragic occasion of their income earner’s passing. In its core, life insurance functions as a protection measure for beneficiaries (the insured party) against the unfavorable repercussions of premature death. Akin to any other insurance type, life insurance ultimately delivers the peace of mind to the insured, partially liberating the aggrieved from distress and possible financial difficulties in return for the premiums paid by policyholder during the period of his lifetime. Usually, the policyholder is the same insured person, yet in some cases an employer might insure a key employee such as a CEO or a top manager, securing itself from potential business losses. Additionally, there is also the concept of “life settlement” providing the policyholder the sale option of his existing insurance policy to a third party in exchange of a one-time cash payment, which is typically higher than the surrender value, yet does not exceed the death benefit.
Talking about life insurance as an insurance product, it is important to specifically highlight two categories under which the main product types fall: term life insurance and permanent life insurance. As it can be inferred from the names themselves, the key distinctive criterion between these two is the duration of the insurance policy. For the term life insurance, a fixed time period (10,15,20,30 years usually) is specified in the policy contract defining the time frame in which the beneficiary/beneficiaries are eligible for receiving the death benefit in case of the insured person’s decease. In contrast, permanent life insurance is a rather expensive product in terms of the insurance premium and additional cash value component, while the duration period ends only with the insured’s death. In fact, the cash value component simultaneously functions as a semi-compulsory saving mechanism, which creates a setting where a person who would have not allocate any saving funds in other situation, does save money now. Eventually, the consistent insurance premium pay from each insured individual contributes to the growth of the aggregate savings in the national economy, which is exceptionally important especially for the developing countries with emerging economies.
Not only are life insurance policies universally recognized as one of the fundamental elements establishing a solid ground for life standard increase in a country, but also, they contribute to the development of the national economy due to their secondary saving-effect they actually create for the policyholders. Notably, the gradual increase in the life premiums globally and the positive trend of interest towards life insurance enhances the insurance companies’ funds gathering ability, thus augmenting the institutional investment potential thereof. All of the aforementioned constitutes the premises for large-scale adoption of life insurance policy in developed and the vast majority of developing countries. The previously shallow penetration rate of 0.43% in in several Central and Eastern European OECD countries, including Baltic states and other FSU countries, has now significantly increased its tempo, with only few post-Soviet countries remaining without insurance companies without license to offer life insurance.
Apparently, in the region of South Caucasus, the only country on a territory of which, life insurance policy obtainment is not yet available is Armenia. In that regard, Armenia is accompanied Tajikistan at the “table” of life insuranceless FSU countries as of today. Speaking individually, the penetration rate and adaptation quality is heavily reliant on the state involvement, initiative and tax politics and regulations. According to the observations, a common pattern can be found when analyzing the tax politics of majority of countries referring to life insurance. More specifically, governments acknowledge the importance of stimulating life insurance consumption for the economy and security purposes and implement the respective policies in form of various tax reduction and tax-free regulations on the existing life insurances.
