How life insurance works

Considered old fashioned, life insurance is often underestimated. Yet, they are one of the best financial foresight solutions.
Considered old fashioned, life insurance is often underestimated. Yet, they are one of the best financial foresight solutions.

What is life insurance?

The concept of life insurance includes insurance that covers the risks of death and disability - in this context it is about
pure risk life insurance
 - and others which intervene mainly within the framework of the private retirement provision - one speaks in this case of
life insurance constituting capital
. Both variants are part of the third pillar within the
three-pillar system in Switzerland
 - and, as such, your private provident fund.
What is life insurance used for and who is it for?
Life insurance covers several needs simultaneously. While young adults can use it as
cover in the event of incapacity for work
, families can use it as 
coverage in the event of death
. L’
old age savings
 and the 
home ownership
 are on the other hand useful for everyone, because the coverage falling under the AVS and the 
Pension fund
often turns out to be insufficient. Life insurance makes it possible to fill these gaps, to guarantee an optimal pension.

Which life insurance to choose?

This question cannot be answered in a general way. The choice of life insurance depends on your personal situation. You will not have the same needs if you are single or have a family. Different solutions are available to you depending on these circumstances. Talk to your advisor about your financial situation in the event of incapacity to work and the protection of your family in the event of death. Also check together whether there are any gaps in your pension situation. This analysis will allow you to quickly and reliably determine the pension insurance suitable for your personal needs.

Get a simple first overview of your pension situation with our 
pension advice

Does life insurance come with tax advantages?

In pillar 3a, life insurance premiums are tax deductible up to the authorized limit. And when paying out life insurance, you benefit from a reduced tax rate.

Conversely, Pillar 3b has no tax advantage. 
Under certain conditions
, however, the payment of life insurance is not taxable.

What is the duration of a life insurance contract?

Life insurance is part of long-term provident insurance.

In pillar 3a, the duration is generally linked to the retirement age. Payment can be made at the earliest 5 years before or at the latest 5 years after reaching the ordinary AVS retirement age.

On the other hand, the duration of the insurance can in principle be freely determined under pillar 3b. As a general rule, the minimum term is 5 years for risk life insurance and 10 years for life insurance constituting capital.

When, and under what terms, does the payment of life insurance take place?

The payment date depends on the type of life insurance purchased:

Pure risk life insurance is only paid out in the event of benefits, that is, in the event of death or incapacity for work.
A life insurance constituting capital is paid in the event of benefits or "in the event of life" at its maturity.

The amount of the payment depends on the conditions of the life insurance:

In the case of life insurance with guaranteed capital, the payment corresponds at least to the agreed amount, plus any unsecured surpluses.
In the case of life insurance without capital guarantee, the amount of the payment is governed by contract and can be influenced by the evolution of investment funds or interest rates.

Can I get the early withdrawal of my life insurance?

In pillar 3a, early withdrawal from life insurance is possible in the following cases:

  • Financing of home ownership for own use
  • Purchase into the pension fund
  • Start of a self-employed activity
  • Permanent move outside of Switzerland
  • Payment of a full disability pension from federal disability insurance and the risk of disability is not insured
In pillar 3b, you can terminate your life insurance contract at any time.

Good to know: in the event of early termination, the 
cash value
insurance is also paid. In certain circumstances, this can lead to financial losses.

What are surpluses in life insurance?

Insurance premiums are calculated based on forecasts of changes in interest rates, risks and costs. If the development is more favorable than expected, it results in surpluses.

With regard to life insurance constituting capital, these surpluses are paid as an additional service within the framework of legal requirements, while for risk life insurance, they reduce the amount of premiums.

In the event of death, what happens to life insurance?

The death of the insured person constitutes what is called a benefit event. Where applicable, the insurance is paid to the beneficiary, regardless of the distribution of the estate.
Can I pledge my life insurance?
It is generally possible to secure a life insurance contract, for example, to finance owned accommodation. 

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