Life insurance policies are among the most popular insurance policies in Germany. They come in a wide variety of forms, as pure risk insurance, as endowment insurance, with fixed amounts or on a declining scale.
The term life insurance
Covering the life risk of the insured is the basic function of life insurance. In practice, term life insurance therefore serves either to secure the provision for the insured’s surviving dependants or to secure the claims of creditors, i.e. usually to secure bank loans. The sum insured must be sufficient to provide for the surviving dependants – in fact, however, many risk insurance policies are probably not sufficient for this purpose. This is because the sum insured must be sufficient as a lump sum or in combination with a pension model to provide the surviving family with sufficient net maintenance and at the same time enable further contributions to their pension insurance. It should be borne in mind that the surviving spouse not only has to make contributions to his or her own pension insurance, but also has to compensate for the reduced widow’s pension by means of supplementary insurance because the pension of the prematurely deceased is frozen. The required sum insured can be estimated by assuming about 75% of net income (after tax but before insurance) and multiplying the annual amount by the number of lost working years of the deceased.
The policyholder should always nominate a beneficiary, otherwise the sum insured falls to him or her, i.e. to the estate, and is subject to inheritance tax.
The endowment insurance
The endowment insurance combines a risk insurance with a savings plan: the policyholder pays a monthly premium which is calculated as a combination of a risk premium and a savings rate. The target savings amount at the end of the term is usually identical to the sum insured in the event of the death of the policyholder before the end of the policy term. Endowment life insurance policies are offered in different variants, for example as unit-linked life insurance. This is then as good or bad as the selected fund in question as an investment. Since funds often do not achieve above-average returns, this form of investment should be carefully considered. The popularity of the endowment insurance has historical reasons: the donation or inheritance of the capital stock (savings amount plus interest minus costs) could be tax-privileged. This is no longer the case; therefore, a policyholder should always compare an endowment policy with alternatives, such as a separate term life insurance and other forms of savings and investment. The legally prescribed guaranteed interest rate must also be restricted at present because of the low interest rates in the market.
We rightly talk about these topics in our Round Table meetings. The Round Table is an action of Herfurth & Partner and serves to clarify and secure wishes and decisions in the family in connection with assets, provision and succession.
The next dates can be found in the Round Table section (welcome homepage).
Further information on many topics can be found in the Publications section (welcome homepage).
Angelika Herfurth
Attorney at law and specialist lawyer for family law