Whole life insurance choicesby Admin | May 1, 2021
To the point
- Endowment life insurance is a way to supplement your retirement savings while providing financial security for your family in the event of your death.
- You decide when you want the saved capital to be paid out and who you want to cover in the event of your death.
- Survivor protection applies from the first premium payment in the full agreed amount.
- However, the endowment insurance model also has weaknesses. Modern annuities also offer double protection, but are more flexible and pay the annuity for life.
Why pension provision is important: Of forecasts and surprises
Thanks to modern medicine and healthier lifestyles, we are getting older and older. At the same time, our income from the state pension is being taxed more and more. As a result, additional retirement provision is becoming increasingly important.
Endowment life insurance - key features at a glance
A classic endowment life insurance policy protects your family financially in case something happens to you and otherwise helps to supplement your retirement savings. As the name suggests, this is done through a one-time payment of the capital. This solution has advantages, given the general increase in life expectancy and low-interest rates, but also disadvantages. Here are the main features:
- Building block for old-age provision with a one-time effect: in old age, you benefit from a one-time capital payout. Depending on the agreed amount, use and life expectancy, you can reduce the pension gap caused by the low state pension for a certain period of time - until you have used up the capital.
- Selectable timing: You decide when you receive your lump-sum payment. You can subsequently change the agreed time to bring it forward or postpone it.
- Immediate survivor protection: With an endowment policy, you can protect your family and loved ones for the duration of the contract. In the event of your death before the end of the contract, your survivors will receive the agreed-upon lump sum in the full agreed-upon amount from the first premium payment.
- Tax benefits: When you receive your lump-sum payment, only half of the income is taxed, as with a private pension insurance policy, provided your contract has run for at least 12 years and you are at least 62 years old when the payment is made. The sum insured in the event of your death is paid out to your surviving dependents free of income tax.
- Low guaranteed interest rate: endowment insurance is similar to conservative savings with a savings account. A minimum interest rate is guaranteed over the entire term. This guaranteed interest rate is related to the general interest rate level. Due to the ongoing low-interest phase, the German Federal Ministry of Finance has lowered the guaranteed interest rate for new contracts to a binding 0.9% as of 2017.
- Restricted investment options: To a certain extent, customers can benefit from surpluses generated by the insurer in addition to the guaranteed interest rate. However, unlike with a private pension insurance policy, the investment of capital in more promising investments is excluded, so that the prospects for returns are limited.
Life insurance in comparison
When hearing the word life insurance, many people first think of endowment or term life insurance. Yet modern private annuities are also part of life insurance and have now overtaken the classic models in terms of performance. Here is a comparison of the most important differences:
Endowment and term life insurance: the differences
Endowment life insurance combines death benefit protection with a private pension plan, where you build up a fixed capital for a one-time payout in old age. Term life insurance, on the other hand, serves exclusively to provide for surviving dependents. If you live longer than the term of the policy, no payout is made. It is therefore a pure risk insurance. In contrast, only endowment life insurance and private pension insurance offer a savings process.
What can endowment life insurance and private pension insurance do?
Endowment life insurance and private pension insurance have one major advantage in common: Both offer double protection through the combination of old-age provision and protection for surviving dependents. However, the possibilities of the KLV are limited by the one-time capital payment and the dependence on the guaranteed interest rate. With a private pension insurance, you can choose a guaranteed monthly pension for life instead of a lump-sum payment. This provides you with long-term security, which is becoming increasingly important in view of rising life expectancy. Alternatively, you can also decide at the start of your pension: Either for a time-limited, but higher pension, or for a one-time lump-sum payment as with the KLV.
There are also similarities in the other options: With both insurance policies, you can flexibly determine the payout date or the start of the pension and temporarily suspend your premiums in the event of financial bottlenecks. Whereas with endowment insurance you only receive a lump-sum payout once at a fixed point in time, with a private pension insurance such as the Allianz PrivatRente you can also withdraw capital in the meantime and make optional additional payments.