The insurance policies marketed as capital insurance, savings insurance and retirement insurance in Switzerland are all permanent life insurance with living benefits.
This kind of insurance typically combines a guaranteed benefit payable at retirement with a variable return. Depending on the structure of the life insurance, the return may be interest paid by the insurance company on the cash value of the policy, or it may be derived from the investment of all or part of the cash value in a certificate or mutual funds.
Permanent life insurance is a relatively secure investment because the insurance company is obligated to pay out the guaranteed benefit with very few applicable exclusions. However, the guaranteed benefit is typically lower than the sum total of the premiums you pay. You will only recover your premiums and/or earn a return if interest or investments perform well.
Another problem with permanent life insurance is that you are tied into an insurance contract. Over the first years of a policy's life in particular, the guaranteed benefit is generally very low in relation to total premiums paid. This means you will likely lose money if you surrender your policy ahead of retirement. Committing to a contract for many years or even decades is risky because it is difficult to predict what may happen financially over that long term.
When you save money in a pillar 3a retirement account, the sum total of deposits paid in is guaranteed by the retirement foundation. You can transfer your pillar 3a assets to a different pillar 3a solution at any time.
Many permanent life insurance policies with living benefits bundle cash value insurance with term life insurance. However, if you need life insurance, taking out stand-alone term life insurance and using pillar 3a savings accounts to save is generally more favorable.
If you want to invest pillar 3a assets to achieve a higher return than the interest paid on retirement accounts, using a pillar 3a retirement fund for that portion of retirement assets is generally more favorable than using permanent life insurance.
Life annuities are a form of insurance which guarantees a lifelong annuity from the time the policy matures (when you reach a predefined age). This insurance can be taken out as a cash value insurance or as an insurance-only product.
Premiums for cash-value life annuities are high in relation to the annuities you receive after maturity, and there are few cases for which this insurance makes financial sense. Premiums for insurance-only life annuities are more favorable, and in some cases this kind of insurance can be used to bridge gaps in pensions or retirement savings.
There are tax considerations related to life annuities. Read the guide to life annuities in Switzerland for more information.
