Life insurance is generally divided into two main categories: term life insurance covers you against the risk of death for a predetermined length of time while permanent life insurance covers you until a specific point in time at which your policy matures (when you die or reach a specific age).
Term life insurance is fairly straightforward. You pay premiums for life insurance coverage and if you die during the agreed-on term, the insurance company pays a benefit equal to the policy’s face value to the beneficiaries of your choosing. If you do not die within the insurance term, then you do not receive a benefit. The moneyland.ch life insurance comparison helps you compare the costs of this type of life insurance and find the best policy for your needs.
Permanent life insurance is more complicated and covers a number of sub-categories including whole life insurance which insures you for life and savings insurance varieties which mature and pay out a benefit at a point in time ahead of your death (when you reach retirement age, for example). You can find more information about this type of life insurance in the moneyland.ch guide to permanent life insurance.
Term life insurance as protection against risk
Term life insurance protects your dependents against the risk of worst-case scenarios. Typically, term life insurance pays out a benefit when the insured person dies within the insurance term, but some policies also pay out a benefit if you become incapacitated during the term.
The death benefit insures your beneficiaries, because it ensures that they will be provided for if and when you die. When you as the policyholder pass away, the people or entities you have names as the beneficiaries of your insurance policy will receive the death benefit. This can help to prevent families from battling with financial difficulties after the death of a key breadwinner.
Perhaps the strongest argument for term life insurance is that death benefits can help surviving dependents to pay off a mortgage or other debt in the absence of the income formerly provided by the policyholder.
The death benefit or face value of a policy is clearly defined when the policy is taken out, so you know exactly what your beneficiaries will receive if you die. You can typically choose face values of between 40,000 and 500,000 francs. Higher death benefits can be arranged through special, custom policies.
Constant benefits vs. decreasing death benefits
In Switzerland you can usually choose from two term life insurance models: the constant death benefit model and the decreasing death benefit model.
When you choose a constant death benefit, the face value of your policy is fixed until your death, so your beneficiary will receive a pre-determined, fixed amount of money from the insurance company, no matter when and how you die – as long as you die within the insurance term. The insurance benefit remains constant throughout the length of the insurance policy. If you want to leave your dependents with a guaranteed lump-sum of money when you pass on, this is the best option.
A policy with a decreasing death benefit, on the other hand, can make more financial sense if your main interest is insuring your dependents against the financial risks associated with your possible death. For example, if you are paying off a mortgage on a home, a large personal loan or an expensive auto loan, getting insurance which matches your debt can help protect your investments.
As you pay off your debts, the financial risk decreases because you owe less money, so your insurance needs decrease accordingly. That is why the death benefit of a decreasing benefit policy is high at the beginning of the term, but decreases every year after that. Typically, your death benefit disappears altogether by the end of the insurance term. Ideally the end of the term life insurance term should coincide with the end of your mortgage term or loan term.
Example: You take out life insurance to cover a mortgage of 200,000 Swiss francs which you will amortize at the rate of 10% per year. The decreasing-benefit term life insurance policy which you get has an initial face value of 200,000 francs and a decreasing benefit rate of 10% per annum over a 20-year insurance term. If you died during your first year as a policyholder, your beneficiaries would receive a 200,000-franc benefit. If you died during your tenth year as a policyholder, a 100,000-franc benefit would be paid out – enough to repay the outstanding 100,000 francs on your mortgage. If you were to pass away at the end of the 20-year term, your beneficiaries would not receive a benefit at all, but your mortgage would be fully amortized by then so there would be no need for a benefit.
Policies with decreasing death benefits generally have much lower premiums than constant benefit policies because you pay for less and less insurance as the insurance term progresses. This makes decreasing-benefit term life policies an economical way to protect your investments.
Life insurance premiums explained
Insurance premiums are based on several factors including your age, gender, lifestyle (smoker/non-smoker, recreational habits, etc.), overall physical condition (weight, medical conditions), and the size of the death benefit which you want your beneficiaries to receive.
Insurance companies use the information which you provide to perform a rough estimate of the chances of your dying within the insurance term. The higher the probability of your dying within the insurance term, the higher the premiums charged. The same applies to death benefits: the higher the face value of your policy, the more you will be charged in premiums.
Typically, the older you are when you take out term life insurance, the more you will pay in premiums because the insurance provider is taking on more risk by insuring you. However, once you have taken out a Swiss term life insurance policy the premiums normally remain the same throughout the insurance term because they are calculated based on your average risk across the full term.
Annually-renewable policies vs. long-term policies
Annual life insurance policies must be renewed every year. Premiums are recalculated every year based on the estimated risk of the applicant at the time. As a general rule, your risk of death (and subsequently your premiums) increase as you get older. When you take out a long-term policy, premiums are calculated based on the risk posed over the full life of the policy, but when you take out an annually-renewable policy, the premium is only calculated based on the risk you pose during the relevant year.
That makes an annually renewable life insurance policy a cost-effective solution for young adults who are in good health because they pay premiums based on their age and health in that specific year.
However, if you need life insurance for more than a brief stint, then there are some disadvantages to getting annually-renewable insurance. For one thing, if your health deteriorates or you take up dangerous work or hobbies, the insurance provider may not renew your policy. Some policies include a clause or optional rider which guarantees that you will be able to renew your policy – but this benefit generally comes at the cost of higher premiums.
If you want to insure yourself over the long term, you are generally better off with a long-term insurance plan with fixed premiums because you will not have to worry about being rejected or paying higher premiums as you change lifestyles, get older or encounter health problems.
Favorable premiums thanks to dividends
When life insurance companies make a profit – due to low death rates or more accurate premium calculations, for example – they sometimes return part of profits to policyholders by way of surplus distributions which can be applied to premiums as discounts or added to cash value (in the case of permanent life insurance).
This is the reason why some insurance providers advertise two different premiums – a gross premium and a possible net premium. When taking out a policy, it is important that you use the gross premium for reference, as the dividends which could result in the lower net premium are not guaranteed.
High risk means high premiums
Insurance providers earn money by not having to pay out insurance benefits. When you take out term life insurance, the insurer gambles on your not dying within the insurance term. The higher the chance of your dying within the insurance term is, the more difficult getting life insurance will be and the more you will have to pay in premiums to get insured.
For example, older people will normally pay more in premiums than younger people because their risk of death is higher. Smokers have a higher probability of death than non-smokers and thus generally pay higher premiums than people with the same age and health who do not smoke. Some insurance providers even issue completely different life insurance policies to smokers and non-smokers. Your body mass index (BMI) is another factor that insurers consider when determining your risk of death.
Pay attention to coverage exclusions
All life insurance policies come with terms and conditions which must be met in order for the benefit to be paid out. In most cases, a number of exclusions – causes of death which are not covered by a policy – apply as well. If you die as the result of hazards which are excluded from coverage, then your beneficiaries may not receive the death benefit. Common exclusions include death resulting from preexisting health conditions, suicide, armed conflicts, terrorism or extreme sports. Some policies contain exclusions which expire after a qualifying period. For example, a policy may not cover death by suicide during the insured person’s first several years as a policyholder to prevent people from taking out life insurance before committing suicide.
If you take on a high-risk hobby (mountain climbing or car racing, for example) or if you plan to travel to a country affected by civil unrest or terrorism, make sure to clearly inform your life insurance provider to find out if your life insurance coverage is affected. You may be able to add coverage for these hazards for an added premium.
If you are thinking of taking out life insurance specifically because you engage in dangerous activities, make sure this is clear in your application. If you have pre-existing health conditions, make sure to have these verified by a doctor and to inform the insurance company when you apply for life insurance. Making sure that you are properly insured against all possible hazards can save your beneficiaries the disappointment of not receiving the full death benefit due to exclusions in coverage.
Pillar 3a or 3b?
In Switzerland, term life insurance policies make use of the 3a and 3b retirement savings categories. The benefit of 3a policies is that the 3a tax deduction applies to the premiums that you pay. The downside of 3a life insurance policies is that by law you can only name your close family members as beneficiaries. The premiums which you pay for life insurance policies based on the 3b retirement savings category are not tax-deductible, but you can name any beneficiary you choose.
Comparing life insurance policies
The premiums charged by different Swiss life insurance companies for similar life insurance coverage vary widely. The most expensive policies can cost as much as 10,000 francs more in premiums for the same coverage over long insurance terms. The loan term is also relevant, as annual insurance premiums can increase dramatically depending on the insurance term you choose. Performing a thorough comparison before taking out life insurance is highly recommended.
The interactive life insurance comparison on moneyland.ch is the most accurate tool of its kind in Switzerland. The comparison evaluates over 100,000 pieces of data to help you find out what you can expect to pay in premiums based on your age, lifestyle habits, the policy term and the size of the death benefit.
Mixed life insurance
In Switzerland, permanent life insurance is often referred to as mixed life insurance or savings life insurance. This insurance combines term life insurance with a 3a or 3b cash value savings instrument. The problem with using life insurance policies as a savings instrument is that the administrative costs which you pay on top of the actual life insurance premiums and contributions to your policy's cash value are generally high. Another disadvantage of permanent life insurance is that in most cases premiums are applied to the total costs of the policy first, before they begin to be applied towards building cash value. In most cases taking out a stand-alone term life insurance policy and opening a stand-alone retirement savings account is a better financial move because you avoid the administrative costs which you pay for permanent life insurance policies.
Swiss term life insurance comparison
Tips for choosing the right term life insurance
Term life insurance vs. mixed life insurance
Term Life Insurance: Constant Benefit vs. Decreasing Benefit
Term life insurance: 3a or 3b
Whole life insurance explained
Permanent life insurance explained