Life insurance offers protection against risks such as disability and death, and lets you save on taxes while your retirement capital continues to grow through compound interest.
Some people think that life insurance must be expensive because it offers so much.
The truth is that only a small portion of your monthly savings goes towards insurance fees. Most of the capital you pay in continues to belong to you and will grow steadily through compound interest.
Does life insurance make sense?
With a single life insurance policy you can cover several needs at once.
How do I benefit from life insurance?
- If something should happen that prevents you from working (disability), you are protected against loss of earnings.
- Family and survivors are financially protected in case of death.
- Annual tax savings of CHF 1000-2500 are possible.
- The insurance company can continue to pay the premiums for you (premium waiver) if you are unable to pay for a while.
- Inheritance privilege: The descendants inherit the capital of the life insurance even if the insured is in debt.
- Privilege under debt collection law: The family comes first! If property is pledged, the capital in the life insurance policy remains with the family. No one can take it away from you.
Which life insurance is the best?
Life insurance policies are incredibly diverse. The best life insurance policy can be customised according to your needs.
Even if a trip abroad or emigration is planned, no problem.
What types of life insurance are there?
There are 2 types of life insurance.
Term life insurance, which is divided into death and disability insurance, and endowment life insurance.
Term life insurance
Death benefit insurance
Payment of insured capital in the event of death.
In the event of disability due to illness, the insured person continues to receive a salary so that he or she does not have to live on welfare at subsistence level.
Endowment life insurance
Endowment life insurance combines risk protection (see above) and savings. The contributions are saved in the form of the 3rd pillar and earn interest.
You can choose whether you want to receive a fixed rate of interest or profit from return opportunities (higher risk, but much higher return).
Young insured persons in particular usually choose the chance of return, since such a long investment horizon usually results in much more capital for the insured person.
More and more people are choosing this form, also called mixed life insurance, because it can be used in so many ways.
At the end of the insurance period, such an enormous capital is built up through compound interest, which would never be possible by saving alone.
Pillar 3a vs Pillar 3b
Payments into life insurance can be made via pillar 3a or pillar 3b (e.g. if you move abroad).
The maximum contribution for Pillar 3a 2021 is CHF 6,883 for employed persons and CHF 34,416 for self-employed persons.
Differences between pillar 3a and pillar 3b
|Pillar 3a||Pillar 3b|
|Only employed persons can pay in||Anyone can pay in|
|Maximum contributions prescribed||Can pay in as much as you want|
|Income tax on payout: – Payment of entire capital Favourable tax rate – Pension payout = normal tax rate||No income tax on payout (except for lump-sum death benefits)|
|3a does not count as wealth = no wealth tax||3b counts as wealth|
How much is compound interest?
Example 1: CHF 200 savings contribution
You put aside only CHF 200.- every month for 30 years. Result: CHF 72,000
How much of the premium goes towards the insurance benefit varies from person to person. For the sake of simplicity, let’s assume that 20% of the premiums paid in are used for the insurance benefit.
Life insurance 30 years, savings contribution of CHF 200.-, with an interest rate of only 3%. Result: CHF 93,000.- and you would have been covered against all risks for the entire term of the contract.
Example 2: CHF 573.- (maximum savings contribution)
Again 30 years, but maximum permitted Pillar 3a savings contribution of CHF 573.- Result: CHF 206,280.-, not bad.
With life insurance, again with 20% insurance fee and 3% interest. Result: CHF 266,000, even though you were completely covered for 30 years and never had to worry about any finances.
Life insurance can be seen as a kind of forced savings.
Not only does it ensure that you and your family have no financial worries for the entire duration of the contract, but it also ensures that you have enough capital for a relaxed life in old age.
Sounds interesting, but you are not yet sure whether a life insurance policy would be worthwhile for you?