Many people in our country have life insurance. This financial product is very popular in Germany – as of 2019, there were approximately 83 million contracts according to Statista. About a third of these were capital life insurance policies. In recent years, capital life insurance has come under criticism from the media and consumer protection agencies. We have summarized for you which types of life insurance exist and whether they are worthwhile.
There are about as many life insurance contracts in Germany as there are citizens, which is 83 million. The variety of options is very high because there are many providers with simultaneously different products and rates. At the same time, many are unsure about the benefits included in different types of life insurances and their respective advantages and disadvantages. With life insurance, you can choose between various types such as traditional pension insurance and term life insurances.
With a traditional private pension insurance, you pay money that will later be paid out to you in the form of a pension. The contract also offers you risk protection, such as against death or disability. The traditional pension insurance can thus be seen as an extension of life insurance, which normally disburses the money in one lump sum. However, such models for retirement provision are often not very profitable and only pay off from an older age, as the pension payment stops upon death, no matter how much has been paid in. An independent retirement plan is often more flexible and more suitable.Besides private pension insurances, Germany also has statutory pension insurances as part of the social insurance system, which probably will not be worth it for younger people anymore. Contributions to this are automatically made in jobs subject to social insurance contributions.
With unit-linked life insurance, you also pay money into a contract. However, the money is not managed by the insurance company but is invested in an investment fund. Thus, you have various financial products in one, which is usually associated with high costs. We will go into more detail about this type of life insurance below.
A standard term life insurance secures your family in case of death. The insurance company then pays out the money to the beneficiaries. Term life insurance is particularly useful or necessary if there are ongoing (construction) loans or if several people depend on a primary earner. It is especially important to calculate an appropriate contribution for the dependents so that they are truly secured in the worst case. Risk factors such as smoking can affect the costs of term life insurance.
As the name suggests, disability insurance financially secures you if you can no longer practice your profession. In such a case, a monthly pension is paid out. For employees who rely on income from work, disability insurance makes sense. It also benefits from being taken out as young and healthy as possible.
Capital life insurance is designed to save up assets for old age. While older contracts with good guaranteed interest rates and tax savings are often attractive, new contracts are not advisable due to the current interest rate situation. This financial product is the main subject of the rest of the article.
When you take out a capital life insurance, you pay a monthly contribution into it. This amount is then divided into the following three parts:
This portion is retained by the insurance company for its work. The costs here are diverse and often opaque. These include, for example, closing costs, administrative costs, cancellation costs, or installment surcharges for monthly payments.
This part of the contribution is set aside for the coverage of the risk that is also often covered with capital life insurance. These include, for example, death or disability.
This is the part that can actually generate returns and grow. The insurance company invests the savings portion to build up capital for your retirement planning.
As can be seen, with capital life insurance, you have two products combined in one contract: on the one hand, securing a risk, and on the other hand, wealth accumulation. As a “combo product,” capital life insurance is criticized because the mixing of two products in one contract is associated with high costs. Thus, it is significantly cheaper if you insure the risk of death or disability in a separate contract and use other products for saving capital.
Taking out life insurance is a significant decision. Contact AIVADO for a detailed consultation. Let us guide you through the choices to ensure your financial plans are robust, protecting what matters most to you.