term life insurance 3a vs 3b switzerland

Term Life Insurance in Switzerland: 3a vs. 3b

In Switzerland, term life insurance policies are normally based on the 3a or 3b categories of retirement savings. This moneyland.ch report looks at the advantages and disadvantages of both models.

Most people automatically think of permanent life insurance (“mixed” life insurance) when retirement savings are mentioned along with life insurance. But in Switzerland, regular term life insurance policies with no retirement savings features also fall under the 3a or 3b categories of retirement savings.

The term life insurance policies offered by Swiss insurers generally fall under one of these categories. Many insurers offer both 3a and 3b versions of the same policy, with identical premiums and benefits for both. This is a point of confusion to many people, who may not understand what a retirement savings category has got to do with term life insurance – or how their choice of policy affects their coverage.

Here, moneyland.ch explains the differences between 3a and 3b term life insurance policies to help you choose the term life insurance policy which best matches your needs.

3a term life insurance

The 3a category of retirement savings is a tax-privileged savings category which is typically used to save for retirement on a tax-free basis. While term life insurance is not a retirement savings vehicle, you can still take advantage of 3a tax benefits by getting a 3a term life insurance policy. You can easily see which policies are available as 3a policies in the moneyland.ch term life insurance comparison.

Pros:

1. Premiums paid for 3a term life insurance can be deducted from taxable income, up to the annual limit for 3a contributions set by the federal government. The limit differs depending on whether you participate in a Swiss pension fund (pillar 2). Claiming this tax deduction can save you a lot of money depending on your tax situation.

2. Benefits received by your beneficiaries are taxed at a lower rate than the rest of their income. The exact tax benefit varies depending on which canton you reside in.

Cons:

1. You do not have free choice of beneficiary. The benefit paid out must follow Swiss inheritance laws. If you want your spouse, children and other legal heirs to receive the death benefit, then a 3a policy will work well for you. If you want any other person or entity to receive the death benefit, this type of policy is very limiting.

2. The insurance term of a 3a term life insurance policy cannot exceed legal retirement age. So this type of term life insurance can only be used until you reach the age of 64 (women) or 65 (men). If you want life insurance which will cover you in retirement, a 3a policy is not a good fit.

3. If you already make the maximum annual contribution to the 3a category each year (as deposits into a 3a retirement savings account, for example), there is no further tax-benefit in getting a 3a life insurance policy.

4. If you are unemployed (or become unemployed), you will not be able to take advantage of 3a tax deductions until you become employed. Generally, insurers will allow you to keep your policy and coverage, but you will not be able to deduct premiums from your taxable income while you are unemployed.

3b term life insurance

The 3b category of retirement savings includes all retirement savings and life insurance products which are not tax-privileged insofar as tax deductions are concerned. As such, they are less regulated and offer more flexibility. You can easily see which policies are available in 3b versions using the interactive term life insurance comparison on moneyland.ch.

Pros:

1. There are no limitations on who you can select as your beneficiaries. You are free to name any person or entity as the recipient of your death benefit.

2. Benefits received by your beneficiaries are taxed at a lower rate than the rest of their income. The exact tax benefit varies depending on which canton you reside in.

3. Age limits for 3b term life insurance coverage are high. Age limits for coverage vary between policies, but typically range from 75 to 85 years old. That means you can choose an insurance term which covers you well into your golden years.

Cons:

1. The premiums you pay for 3b term life insurance do not benefit from the 3a tax deduction. Premiums can be included in the insurance deduction, but this deduction is relatively low and include all insurance premiums (health insurance, car insurance, etc.) so you may only be able to claim a deduction for a fraction of your life insurance premiums.

Verdict

Using 3a term life insurance can work out cheaper than using 3b term life insurance if you are eligible to claim 3a tax deductions. If your goal in getting life insurance is to protect your spouse or children financially in the event that you pass away before reaching retirement age, this type of policy suits this purpose.

If you want life insurance coverage which you can keep for many years after you reach retirement age and/or want to choose a specific beneficiary other than your legal heir, then a 3b term life insurance policy gives you those options. In exchange for these privileges, you forgo the 3a tax deduction.

The comprehensive term life insurance comparison on moneyland.ch clearly states whether a policy is available as a 3a policy, a 3b policy or both.

More on this topic:
Life insurance comparison
Choosing the right life insurance coverage
Life insurance: useful tips
Term life insurance vs. mixed life insurance
Term life insurance: Constant benefit vs. decreasing benefit

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