There have lots of families who have life insurance. Million contracts are currently running in particular regions. But the former "standard insurance" is poorly available nowadays: it's not worth it anymore. When should you keep your agreement, when should you get rid of it? And what kind of life insurance do you need?
Tasks of a life insurance
A life insurance policy is usually concluded for one of two reasons. First one is either it protects survivors in the event of the death of the policyholder against a sudden financial bottleneck (term life insurance). Or the second one is it serves the purpose of old-age provision (endowment or life insurance). With a classic maturity of 20 to 25 years and good interest, it can save a lot of money. In the past, this worked quite well: The insurers successfully invested in the capital market, generated similar interest and shared the profit with the policyholders.
The basic problem
Nowadays, there is little or no interest on invested money. For example, the guaranteed interest rate for life insurance has fallen in recent years from around four percent to currently 0.9 percent. Of this, insurance companies still deduct processing fees and other costs, so that in the end, there is hardly any profit left for paid-in money. New contracts, therefore, offer hardly any attractive terms. If you can find out the best life insurance companies, you can minimize the basic problem.
What to do with older contracts?
If you have concluded a contract in the 1990s or the beginning of the 2000s, the insurers usually guarantee about four percent return on saved money. Added to this is the profit participation, i.e., the participation in the profits of the insurer — moreover, the shares in the so-called valuation reserves of the insurer. Surplus participation and valuation reserves are linked to the current situation on the financial market and can fluctuate. With a four percent guaranteed interest rate, however, a decent payment is usually possible after the end of the term.
Important: Contracts concluded before 1 January 2005 are exempt from taxation in certain circumstances. For contracts concluded after January 1, 2005, the personal tax rate applies.
If you are not sure whether your current contract is worth it or if you should get rid of it better, you can count it! There are relatively easy to understand on the Internet insurance calculator. Alternatively, you can also consult the financial experts of the Consumer Centers.
How to get out of your contract?
If you realize that your life insurance is no longer worthwhile or you cannot afford the contributions currently, you have several options:
Termination and repurchase
It is the most expensive option, especially if your contract is relatively new. In the first years, insurers deduct from the money invested most of the commissions and processing fees. The surrender value is then correspondingly low. Specialized insurance purchasers may offer more favorable conditions for the repayment than the insurer itself.
If you only have a few months or a few years before the expiration date, then you can apply for the insurance to run without further payment. Advantages: You retain your insurance cover and continue to participate in the surpluses of the insurance company.
You will receive a bank loan equal to the value of your insurance. It is especially worthwhile if you count on a large sum of money and you can certainly service the investment in any case.
Company or government funding is worthwhile
Whether capital or unit-linked life insurance: Even if the current contract does not attract interest.
It is beneficial to remain as soon as the employer pays or there are state subsidies. The bottom line is that you can still generate a positive return on your paid-in money.
Special case term life insurance
A term life insurance is not concluded for saving or retirement. It is solely for the protection of survivors. So, if you ensure that your family does not get into financial distress in the event of your death, such insurance is recommended. The costs are relatively cheap: At twenty years of life and a hedge amount of about 30,000 euros, such insurance costs around 15 euros per month. If the term is over and no insurance claim has occurred, there is no money back. The contract can be extended or renewed.
The conclusion of life insurance as a pension or savings model is usually no longer worthwhile today. However, older contracts often still bring reasonable interest rates. If you are unsure, have your contract reviewed. However, a term life insurance is very advisable, especially for families and in case of a credit burden.