How life insurance works

How life insurance works

Considered old-fashioned, life insurance is often underestimated. However, they are one of the best financial pension solutions.

What is life insurance?

In this context, the concept of life insurance includes insurance that covers the risks of death and disability. It is a matter of pure risk life insurance. And others that mainly intervene in private old-age provision – in this case, we speak of capital-building life insurance. Both variants are part of the third pillar within the three-pillar system in Switzerland– and, as such, your private pension.

What is life insurance, and who is it for?

Life insurance covers several needs simultaneously. While young adults can use it as cover in the event of incapacity for work, families can use it as cover in the event of death. On the other hand, I’ retirement savings and homeownership are helpful for everyone because the coverage under the AVS and the Pension fund often turns out to be insufficient. Life insurance makes it possible to fill these gaps, to guarantee optimal pensions.

Which life insurance to choose?

This question cannot be answered in general. The choice of life insurance depends on your situation. You will not have the exact needs if you are single or have a family. Different solutions are available to you depending on these circumstances. Discuss with your adviser your financial situation in the event of incapacity for work and the protection of your family in the event of death. Also, check together whether there are any gaps in your pension situation. This analysis will allow you to determine quickly – and reliably – the pension insurance adapted to your personal needs.

Get a simple first overview of your pension situation with our pension advice.

Does life insurance come with tax benefits?

In pillar 3a, life insurance premiums are deductible from your taxes up to the authorized limit. And when paying out life insurance, you benefit from a reduced tax rate.

Conversely, pillar 3b does not have any tax advantages under certain conditions. However, the life insurance payout is not taxable.

What is the duration of a life insurance contract?

Life insurance belongs to long-term provident insurance.

In pillar 3a, the duration is generally linked to the retirement age. Payment can be made at the earliest five years before or at the latest five years after reaching the ordinary AVS retirement age.

On the other hand, the duration of the insurance can, in principle, be determined freely within the framework of pillar 3b. As a general rule, the minimum duration is five years for risk life insurance and ten years for capital-constituting life insurance.

 The insurance protects your loved ones and guarantees your standard of living.

When, and under what conditions, does life insurance payout?

The payment date depends on the type of life insurance taken out:

  • Pure risk life insurance is only paid out in the event of benefits, i.e., death or incapacity to earn.
  • Capital-constituting life insurance is paid in the event of benefits or “in the event of life” at its maturity.

The amount of the payment depends on the conditions of the life insurance:

  • In the case of life insurance with guaranteed capital, the payment corresponds to at least the agreed amount, plus any non-guaranteed excess.
  • In the case of life insurance without a capital guarantee, the payment amount is governed by the contract and may be influenced by changes in investment funds or interest rates.

Can I obtain the advance payment of my life insurance?

In pillar 3a, advance withdrawal of life insurance is possible in the following cases:

  • Financing of own-use housing
  • Purchase in the pension fund
  • Start of a self-employed activity
  • Permanent move outside Switzerland
  • Payment of a total disability pension from federal disability insurance and the risk of disability is not insured

In pillar 3b, you can terminate your life insurance contract.

Good to know: in the event of early termination, the redemption value insurance is also paid. In certain circumstances, this can lead to financial losses.

What are excesses in life insurance?

Insurance premiums are calculated based on forecasts on the development of interest rates, risks, and costs. If the product is more favorable than expected, surpluses result.

About capital-constituting life insurance, these surpluses are paid as an additional benefit within the framework of legal requirements, whereas for risk life insurance, they reduce the number of premiums.

In the event of death, what happens to life insurance?

The death of the insured person constitutes a so-called benefit event. If applicable, the insurance is paid to the beneficiary, regardless of the distribution of the estate.

Can I pledge my life insurance?

It is generally possible to pledge a life insurance contract, for example, to finance a residential property.

By aamritri

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