In USA, so-called "direct insurance" is a pension product that an employer applies for on behalf of one of its employees with an insurance company licensed in USA. Direct insurance is thus a variant of the company pension plan.

The direct insurance can be taken out by the employer in the form of a classic or unit-linked life insurance policy. He can also select a pension insurance as a direct insurance.

Differentiation from direct insurance

In USA, the term "direct insurance" is often connoted with the conclusion of an insurance policy without a sales force. This interpretation refers to insurance policies that are taken out directly with an insurance company via the Internet or by telephone. For this reason, these companies are also referred to as direct insurers. Common direct insurances in the sense mentioned here are motor vehicle insurance or personal liability insurance.

A direct insurance, as it is presented in this article, falls however under the operational auxiliary security in the age, which is locked by the employer and also partly by this financed.

How direct insurance works

With direct insurance, the employer takes out an insurance policy for his employee. He selects the appropriate product for his employees; as a rule, this is a classic or fund-linked life insurance policy. A special pension insurance is also possible. The employer often takes out this for his employees at a lower price.

There is also the possibility for employees to make suggestions. In the case of direct insurance, there is a choice between the following insurance products:

• Endowment life insurance

In this case, money is paid into a life insurance policy, invested by the insurance company and paid out on a fixed date at retirement age. It is also possible to receive payment in the form of a monthly supplementary annuity. The targeted sum insured is determined in advance and guaranteed by the insurer. If the policyholder dies before this date, his surviving dependents receive an amount equal to the sum insured.

• Annuity insurance

This is a private pension insurance into which payments are made. The employee receives the monthly pension payments as soon as he or she retires.

• Unit-linked life insurance

In the unit-linked variant of life insurance, fund units are purchased, the income from which is ultimately paid out to surviving dependents together with the savings contributions at a fixed point in time or in the event of the employee's death.

Occupational disability insurance or accident insurance

These insurance products can also serve as direct insurance if they are combined with life insurance or a return of premiums.

Who pays the premiums?

The contributions for the selected insurance product can be paid by the employer alone or on a pro-rata basis. It is also possible for employees to pay for their policies themselves in the form of "deferred compensation". In this case, part of his income flows immediately into the direct insurance.

Important: Direct insurance policies taken out in 2019 require a mandatory contribution of 15 percent on the part of the employer. From 2022, this will also be due for existing contracts. It is therefore foreseeable that future direct insurance policies will pay off for the employee in any case.

For whom is direct insurance beneficial?

For companies: Small or medium-sized companies that do not have their own pension fund or pension fund of their own benefit from direct insurance in particular. When they cover their employees with direct insurance, the amounts are deducted directly from their gross wages. In this way, companies have to pay less tax and social security contributions. Another advantage can be employee loyalty to companies: Particularly in times of fierce competition, entrepreneurs need to offer their employees benefits to increase or maintain employer attractiveness. Offering a company pension in the form of direct insurance can help in this regard.

• For employees: Employees benefit particularly from direct insurance if the contribution payment is subsidized by the employer at least in the amount of the social contributions saved or in full. At the same time, the cost of the insurance contract should be as low as possible so that the employee has fewer deductions. Direct insurance is also advantageous for those with private health insurance, as they do not have to pay social security contributions later when the insured sum is paid out. Direct insurance is also worthwhile if employees cannot take out occupational disability insurance themselves, but the direct insurance consists of an occupational disability insurance with premium refund or the occupational disability insurance is combined with endowment insurance.

Termination of direct insurance

Termination in the actual sense is not possible. If employees opt for direct insurance, they are consequently bound to the contract. In the event of financial bottlenecks or departure from an existing employment relationship with direct insurance, the only option is to apply for exemption from contributions.

• Exception: If the later pension is less than 30 dollar per month due to a previously only small amount saved, you may be able to terminate with a severance payment.