The life insurance guide
Life is always full of surprises, not all of them pleasant. Some events have far-reaching consequences. This can present you and your loved ones with major challenges, also financially. With our guide, we would like to show you how life insurance works in Switzerland and what benefits it can offer you to successfully shape your life and protect everything you have achieved.
What is life insurance?
Life insurance is designed to protect you in different circumstances. On the one hand, it allows you to protect yourself or your family against the financial risk of death or long-term illness or accident. On the other hand, there are combined insurance policies that focus on savings or retirement provision. These also include a protection aspect - for example, a premium waiver if you become disabled.
When does life insurance make sense? And for whom?
There are various reasons why life insurance can make sense in Switzerland. For example, do you have special responsibility in the family or as an entrepreneur? If so, it makes sense to at least have some form of security in the event of death. The question of which life insurance policy is best today cannot be answered in general terms, but depends on your personal circumstances.
Taking out life insurance in Switzerland makes sense in the following situations:
- You wish to prevent your family from having to suffer from financial difficulties in addition to their loss and grief.
- You want to protect your life partner, as he or she is in a worse legal position than a spouse.
- You want to ensure the continued existence of your company in case something happens to you.
- You want to close your pension gap in the event of disability.
- You are self-employed and are not adequately covered by either occupational benefits or accident insurance.
- You would like to secure yourself financially beyond the statutory pension plan and benefit from tax advantages.
- You want to maintain your usual standard of living in old age.
What are the advantages of life insurance?
- Minimize risk: With a life insurance policy, you can ensure financial security in the event of unforeseen events.
- Private pension planning: Build up assets in a targeted manner with restricted pension plan (pillar 3a) so that you do not have to accept any reduction in your standard of living later on.
- Save thanks to tax benefits: The tax-privileged pillar 3a model not only enables you to make provisions but also save taxes at the same time.
- Needs-based: Thanks to different insurance products, you can find insurance coverage that suits your circumstances and needs.
- Profitable: Life insurance policies offer more return potential than conservative investments with low interest rates such as savings accounts - retirement provision is the new way to save.
- Secure savings target: The fixed period and the premium help you achieve the set goal and to protect yourself in the future with the saved capital.
How does life insurance work in detail?
A good retirement provision adapts to your personal circumstances and individual needs. Therefore, no two insurance policies are the same. What they all have in common is that life insurance is basically a long-term retirement provision and always has a protection component. The policy has a fixed term: In pillar 3a, the restricted pension plan, the insurance runs until retirement age or until shortly before. In pillar 3b, the term is freely selectable; for a tax-free payout, it must be at least ten years for insurance financed with a single premium. The insurance is financed either by annual premiums or by a one-time payment (single premium). Risk life insurance is exclusively about protecting against the consequences of a life risk, either death or permanent disability, referred to as biometric risks. It is only paid out when the insured event occurs. In the case of term life insurance, a one-off sum is paid out; in the case of disability insurance, it is usually an annuity. Savings insurance, on the other hand, serves to build up capital for old age. So there is a payout in any case. But even with savings insurance, there is always a risk coverage component; the premium would at least continue to be paid by the insurance company in the event of disability.
How high is the premium?
The premium is calculated individually, based on the personal risk. Influencing factors are, for example, age, gender, smoking habits and any previous illnesses. In addition, you can choose yourself which capital or which pension should be paid out in the event of a claim. General rule: the higher the insured benefit, the higher the premium. Using our online calculator, you can easily determine your personal premium for risk life insurance. For savings insurance, we will be happy to advise you individually - in a personal meeting, by video conference or by telephone.
A comparison of the different types of insurance
Financial protection in the event of disability protects you and your family against the risk of loss of earnings if you are no longer able to work at all or only partially after an accident or due to illness. Disability insurance can be useful in the following situations:
- You would like to maintain your standard of living even in the event of a long-term illness and then have a similar amount of income as before. You are aware that most gainfully employed persons can only expect about 60 percent of their previous income in the event of disability due to illness and would like to close this gap.
- There are people who are financially dependent on you, for example a life partner or underage children. You would like to provide for these people and ensure that they can continue to live in the same circumstances as they do now.
- You need your income to meet your obligations, for example for interest and mortgage payments. You want to ensure that you do not lose your home even in the event of a serious illness.
- You are self-employed, but have no or only basic benefits from your occupational pension scheme. Therefore, you would like to take out additional insurance.
- You are currently not gainfully employed, but your unpaid work is important for the family because you bear the main responsibility for raising the children and looking after the household. If you were to be unable to work, considerable costs would be incurred against which you would like to insure yourself.
Risk life insurance
Term life insurance provides financial protection for dependents or business partners in the event of your death in the middle of your working life. 5 reasons why risk life insurance might be advisable.
Hardly anyone knows how disadvantaged children are who become permanently disabled due to an accident or serious illness. This is because they may never have any earnings from gainful employment. To pay their living expenses, they can only expect benefits from the first pillar and supplementary benefits, but not the much more extensive benefits available under occupational pension schemes. Health insurance companies also only pay for medical treatment, and at best a small capital sum can be secured. But they do not offer regular pension benefits over the entire working life. That makes it even more important to get comprehensive cover for children. With this insurance, the risk coverage can also be linked to a savings component - so you can give a closely related child a big treat on their 20th birthday.
Further information on the children’s insurance
Savings life insurance
Zurich offers various savings insurance policies. Depending on your needs, a guaranteed maturity payment as well as death and disability protection can be included in the insurance.
- Pension 3a
In Switzerland, you can insure yourself against life risks and save for your old age on a tax-privileged basis with a restricted pension plan. Usually, the policy runs until retirement age and the beneficiaries are the direct family members (legal heirs). We explain here how pillar 3a works and other reasons why the private restricted pension plan is worthwhile.
- Unrestricted pension plan (pillar 3b)
The pillar 3b unrestricted pension plan allows you to save capital in excess of the maximum sum in pillar 3a or to protect yourself against life risks. In pillar 3b, you can freely choose the term of your contract. If it runs for at least ten years and certain other factors are met, the payout of your capital is tax-free even for policies financed with a single premium. You can take out both a pure risk insurance policy and a capital-forming insurance policy as part of the 3b unrestricted pension plan. Unlike with pillar 3a, with 3b life insurance, you can freely choose your beneficiary. And not forgetting: If the insurance serves to provide for your family, the bankruptcy privilege applies, i.e. even if the policyholder goes bankrupt, the credit balance from the policy is protected for the dependents and does not fall into the bankrupt's estate.
How do I go about finding the right insurance policy for me?
The right insurance is the one that meets your needs: If you want to protect your loved ones in the event of a stroke of fate, risk life insurance is the right choice. If you want to protect yourself and your dependents from the financial consequences of disability, choose a disability insurance. With a life insurance, those who want to combine risk coverage and old-age savings will find a solution in Switzerland that covers both aspects. Fund-based insurance policies such as "Capital Fund" or the savings insurance "Premium Life" offer potential returns even in the current low-interest environment. For those who do not want to contractually commit themselves to regular payments, the Zurich Invest Ltd. pillar 3a account offers a suitable pure savings solution without risk coverage.
Can I save money with a life insurance policy?
If you take out the insurance as part of the restricted pension plan (pillar 3a), policyholders in Switzerland can deduct the premiums paid in from their taxable income in their tax return. The current maximum amount for employees with a pension fund is CHF 6,883. How much tax you can save in this way depends on your income and your circumstances. You can find more tax tips here.
Can I cancel my life insurance?
Yes, in principle you can cancel your life insurance policy at any time and have the so-called surrender value paid out. However, you are usually better off choosing another option, such as taking a premium break, pledging or mortgaging the insurance policy, because a surrender always results in a loss. Click here to find out what interesting alternatives to termination are available to you.
How does Switzerland’s three-pillar concept work?
The Swiss retirement provision system is based on three pillars:
- state retirement provision (1st pillar)
- occupational retirement provision (2nd pillar)
- private retirement provision (3rd pillar)
The aim of the Swiss retirement provision system is to provide the country's population with a reliable income for all life situations. For example, after retirement, in the event of the death of a partner or in the event of permanent disability due to illness or accident.
1st pillar – state retirement provision
The 1st pillar is about ensuring subsistence. This pension is intended to cover the minimum necessary living requirements. The 1st pillar consists of old-age and survivors' insurance (OASI), disability insurance (DI) and the income compensation scheme (EO).
2nd pillar – occupational retirement provision
The 2nd pillar ensures your accustomed standard of living. For occupational retirement provision, employees and employers pay at least the same amount into a pension fund. The employer can also volunteer to pay more.
3rd pillar – private retirement provision
The assets in the 3rd pillar serve to close any pension gaps from the 1st and 2nd pillars. It also allows you to retire earlier or fulfill dreams and wishes after retirement.
Find out more at vita.ch
Bank or insurance: what are the differences in the 3rd pillar?
The biggest differences between a pillar 3a solution from a bank or an insurance company relate to the risk protection for you and your family, your savings goal and the period of insurance.
Risk protection for families and savings goal
With an insurance company, you take out an insurance contract under pillar 3a. This includes insurance coverage in the event of disability and/or death. This means that if you become disabled, your insurance will pay the annual amount due into pillar 3a for you. You will therefore continue to save for retirement, even if you can no longer work. Depending on the retirement provision solution you choose, you will also be paid a disability pension until retirement. In any case, you will meet your defined savings target. In the event of death, a lump-sum death benefit will be paid to your surviving dependents. This means that your loved ones will at least be protected from the financial consequences of this misfortune. You pay for this insurance coverage with a portion of your premium.
When you open your pillar 3a with a bank, the main focus is on the savings process. You and/or your family will not be protected against the financial consequences of disability or death. If you can no longer pursue your work, you will no longer be permitted to pay into pillar 3a. In this case, you will not reach your defined savings goal.
Period of insurance
Insurance contracts under pillar 3a always have a fixed period of insurance. This usually extends until the normal retirement age. You undertake to pay a certain amount into the pillar 3a policy on a regular basis.
After the third insurance year, however, you have the option of pausing payments for up to three years. Insurance coverage does not expire in this case. This means that you will continue to be fully insured if, for example, you go on parental leave or spend time abroad. The only consequence is that your savings target will be reduced by the amount of the paused payments.
- With a life insurance policy, you can protect your loved ones or business partners against the financial consequences of strokes of fate.
- Suitable insurance coverage is available for any circumstances.
- You benefit from tax advantages under pillar 3a and pillar 3b
- Our professionals offer you an individual analysis of your personal pension situation. Benefit from a pension consultation so that you can optimally protect your loved ones and yourself and provide for your old age. We would be glad to advise you.