How to choose life insurance?
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Life insurance in Switzerland is a complex and heated subject. Indeed, many insurance advisors will try to sell life insurance linked to the third pillar (life insurance 3a), and these products are terrible and often sold to people who do not need life insurance.
But life insurance by itself is not that bad. So what if you need life insurance? How should you choose a life insurance product, and in what cases could it be useful?
We will find out by exploring the subject of life insurance in Switzerland!
Life Insurance in Switzerland
As mentioned before, Life insurance in Switzerland has a better reputation because of the very bad life insurance 3a products. I have already talked about how life insurance 3a products are terrible, so I will not explain it here. I will not cover 3b life insurance either. But this entire industry makes life insurance look bad in Switzerland.
Now, linked life insurance aside, there is nothing wrong with pure risk life insurance. Pure risk life insurance is insurance that does not accrue capital. It is insurance against death. Every month or year, you pay a premium, and if you die before the life insurance term, the policy beneficiary will get a given amount of money.
The money is lost if you do not die before the term (no capital is accrued). It is pure risk life insurance.
There are two main families of life insurance:
- Term life insurance will cover you for a given time.
- Whole-life insurance or permanent life insurance will cover you until you die.
Whole-life insurance generally has a cash value and is more expensive than term life insurance. They have the same disadvantages as life insurance, so I recommend against permanent life insurance. We will focus on term life insurance which is a much better tool for people that need life insurance.
So, in this article, we discuss pure-risk life insurance in Switzerland and how to choose a policy.
Who needs life insurance?
Contrary to what most financial advisors will tell you, most people do not need life insurance. Life insurance is made to improve the financial situation of your survivors. But advisors get hefty commissions when selling insurance, so be careful of financial advisors and their conflicts of interest.
For instance, you do not need life insurance without dependents. The same is true if you are yourself depending on another person.
You must ask yourself: Will anybody’s financial situation worsen if I die? If the answer is yes, you may need a life insurance policy.
I say “may need” because other ways exist to protect against this event. For instance, sufficient investments for your beneficiaries would be enough in many cases. Also, we already have some insurance in case of death with our retirement benefits. For instance, the second pillar covers widow’s and orphan pensions.
Here are some examples of people who could need life insurance:
- A couple with one person earning most of the income and little to no savings.
- A couple or person with several children at a young age.
- Adults close to retirement without much savings.
- A key entrepreneur.
These are only examples; there may be others, and some may not need life insurance since there are other solutions.
I do not believe we need life insurance. Our relatively sizeable net worth could cover my family’s expenses for several years. My wife would also get a widow’s pension from my pension fund. Together, this should be enough to last a while.
Life insurance and taxes
We should quickly discuss the topic of taxes and life insurance.
Since we are not talking about 3a and 3b, term life insurance has no tax advantages. You will not be able to deduct your premiums.
Beneficiaries must pay taxes on insurance benefits. However, this payout is taxed at a lower rate than your income. This reduced rate is 20% of the income tax rate at the federal level. At the cantonal level, it varies highly from one place to another, but the rate is generally significantly lower than your income tax rate.
Also, the insurance benefits are not added to your taxable income in both cases. This is good since insurance benefits will not increase your income tax bracket.
How to choose life insurance?
How should you choose a policy if you have decided you need life insurance?
There are a few decisions you need to make before choosing. For instance, you need to select the life insurance policy term. This will then drive the choice of provider.
As with everything financial, there are many services providing life insurance. But it should be relatively easy to choose, the main criteria being the price.
So, we will see how to choose a life insurance policy.
The term of the life insurance
First, you need to decide how long you want to cover the risk of death. As we have said before, term life insurance is generally better than whole life insurance so we will focus on term life insurance only.
So, you need to choose the term of your life insurance. Most people do not know exactly how their future will develop. So you may need life insurance for the next ten years, but you may not need it after that. Therefore, getting thirty years of insurance does not make sense if you only need it in the next ten years.
Longer-term life insurance will cost more per year than a shorter one. So you have to be careful. However, taking life insurance early is also cheaper than taking it later. So, you have to balance everything properly.
I recommend shorter terms when possible. Instead, you should try to improve your financial situation so you no longer need life insurance.
Your age will play a significant role, of course. If you are already 60, taking a 40 years term may not make sense, but it may make sense at 20.
I cannot tell you how long you need life insurance. You must decide based on your financial situation and how it will evolve.
If I were to take life insurance now at 34, I would take it for ten years. I can imagine that our financial situation will be significantly better after ten years, so I would not imagine needing life insurance after age 45.
The payout of the life insurance
The second parameter you must choose for your situation is the payout amount in case of death.
Generally, life insurance starts at around 100’000 CHF, but many insurance providers will allow you to go lower. But anything below 100’000 CHF is unlikely to make a meaningful enough impact that you may need life insurance in the first place.
There is also no maximum for life insurance. You could insure yourself for several million CHF. But the premiums of the insurance are also correlated with the amount of the payout.
Once again, this parameter will highly depend on your financial situation and that of your dependents. A rule of thumb is to estimate how many years of expenses you want to protect your dependents against.
For instance, assuming your household spends 100’00 CHF per year, a payout of 100’000 CHF would only cover them for a year. If you wanted to protect them for three years, you would need about 300’000 CHF.
Again, if I were to take life insurance for our household, I would get about 250’000 CHF of payout. This should cover my family for four years at our current expense level.
Protection in case of incapacity
Most life insurance in Switzerland will allow you to protect against disability. If you become disabled during the insurance term, the insurance will pay the premiums.
This protection is very interesting because it means that when you cannot work and pay your life insurance premiums, the insurance itself will cover the premiums. And it also means that you will not have a reduced payout.
Generally, this option is cheap, adding only a tiny amount to the premium. Even though the probability of becoming disabled is low, this is still a valuable option because life insurance is about protection. So adding extra protection in case of disability makes sense.
I would take this option if I took life insurance.
How to choose a policy?
Now that you have decided on all the parameters, you need to choose a provider for your life insurance.
If you compare two life insurance with the same parameters, the most important criterion remaining is the premiums you will pay. You want to pay the lowest premiums for the same term and payout.
The second criterion is only to choose reputable providers. I do not recommend using a company that you have never heard of. I would personally only consider a major Swiss insurance company.
Comparing premiums is very important because you can easily find some insurance that is two or three times more expensive than others.
It is also essential to know whether the premiums will be constant. Indeed, some providers will make you pay the same premium every year until the term. But others will quote the premium for the first year, and then it will increase every year.
I prefer the first option because it gives some security to know how you will pay in the future. In the second option, you can generally cancel the contract yearly on each price hike.
Unfortunately, most insurance companies do not give online quotes. There are a few exceptions, like Generali and Allianz, but if you want to compare many providers, you must request quotes by filling out forms with several providers.
I only found one life insurance comparator at Moneyland. However, this comparator is very limited. It lacks premiums for most providers. From my data, it only gave me three different premiums.
For my situation (10 years term, 250’000 CHF payout, 34 years old and non-smoker, I was able to find the following premiums:
- SafeSide at 131 CHF per year
- Generali at 257 CHF per year
- Basler at 276 CHF per year
- Vaudoise at 298 CHF per year
- Allianz at 340 CHF per year
- Zurich at 373 CHF per year
The first option is almost three times cheaper than the last option! These are impressive differences. Generally, I would discard providers I do not know, like SafeSide. However, since it is twice cheaper, I researched them a bit.
It turns out they are a digital-only life insurance startup from Zurich. The life insurance itself is not provided by SafeSide but by three different insurance providers: Baloise insurance, Vaudoise, and Squarelife. In the case of my offer at 131 CHF, it was coming from Squarelife. Since I had never heard of this provider, I needed to research them as well!
Squarelife is a relatively small company trying to disrupt the life insurance market. Squarelife operates as a digital life insurance company and ensures people have proper life insurance for fair prices.
After reading and hearing about Squarelife, I would choose Squarelife for my life insurance.
Do not take this as a recommendation. I only looked at online quotes. There may be better insurance providers without online quotes. You will have to do the same research for your case. I also never had a policy with them or heard somebody claiming something. If you have an opinion about Squarelife, I would love to hear it in the comments below.
What is impressive about these quotes is that taking life insurance when young is very cheap. If you plan to improve your financial situation substantially, this can be a good stepping stone to have this as a backup for the next ten years. But it is also true that the probability of death when you are young is low.
A premium below 150 CHF per year can easily be justified if this helps you sleep at night.
Conclusion
Life insurance in Switzerland is a hot topic. But when you remove the 3a and 3b products, the remaining term life insurance is decent and not particularly expensive.
Life insurance products can make sense in certain situations to ensure that your dependents are still in a good financial situation after your passing.
Nevertheless, it is also true that most people do not need life insurance. It remains a niche product in some situations. And it is often better to try to ensure the financial well-being of your dependents without life insurance.
I do not plan on taking life insurance because we already have enough coverage. But I understand why people like it.
The most important takeaway from this article: if you need life insurance, take a pure risk life insurance but never a life insurance 3a. If you still need convincing, read my articles about the bad life insurance 3a.
What about you? Do you have life insurance?
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First check on Squarelife fails – the website isn’t even working (home opens but all links to try and find out more fail)
Interesting, it was working a few days ago. But I agree that this is not very professional.
Thanks for this website BTW, I’ve recommended it to some others, very useful.
The quotes for me (58yo non-smoker) are rather a lot higher, and seem to be time-limited to up to 65 years old. Cheapest overall for 250k payout through Safeside (insurer is Vaudoise) is 1060CHF per year, so 8 times your price for us oldies :-)
Hi Geoff,
Yes, the price will always increase with the years since the probability of death increases. But the increase is quite crazy in this case.
And it seems true that Squarelife only insurances up to 65, which is weird for pure-risk life insurance.
Hi Baptiste,
First of all, congratulations on your blog. It helped a lot on my relocation to Switzerland :)
While checking on Squarelife’s website I stumbled upon Turtleneck, which is a mutual life insurance backed by them. Premiums are way lower but I could not spot where’s the catch.
Any thoughts?
Best,
CM
Hi CM,
I am glad I was able to help :)
Is it in the same order as what I described with Safeside and Squarelife?
I have recently talked to Squarelife and they do seem legit. They have the advantage of being fully digital, saving money and offering lower premiums.
I had a look at Turtleneck, it seems a bit strange, though the theory behind it sounds plausible (but that is true of many scams). It refused me the larger coverage as I had an operation last year (although this is perfectly healed and worked well), but it offers an “Instant” coverage of 100,000chf for 30chf a year anyway, which seems a little bit too cheap to be true as I’m 58.
Thanks for sharing your numbers Geoff. But turtleneck Instant only covers accidental death and not health-related death and not natural death. So age should not matter much in this case.
Hi Baptiste,
I’m currently in the process of reviewing my entire financial situation and look at all financial aspects including the life insurance.
I have currently a life insurance with Generali since 2019. I just checked the details and I see that I have it till 2047 with yearly premium of 705chf.
The insurance amount in case of death is 250’000chf.
And I just noticed it is actually labeled as “Freievorsorge 3b”… Does it mean it is the Pillar 3b?
Does these numbers make sense in according to your research? We are a family of 4 (2 kids, not working wife), some savings but not much so I do need some better protection. I’m in my early 40s if that gives a better picture.
I have to admit when I signed the contract I haven’t done much research back then. Now I would like to make more informative decision.
Thank you for your insights,
Mac
Hi Mac,
Given the life insurance is for about 30 years, 705 CHF sounds about right. If you take longer term, it’s more expensive. Helvetia may be more expensive than others.
Yes, it means 3b, but that may have to taken widely. 3b is normally only life insurance with a capital part which seems to not be your case where you only have a pure-risk life insurance. But many people use 3b to mean everything outside of the other three pillars.
Thanks a lot for your answer Baptiste.
Thank you for this great post ! Viac seems very interessting in term of pricing. I am 34 and I can subsribe for life insurance for a capital of 300’000 CHF for 220 CHF per year. I did not check all details but seems fair. This price if for one year and this year. The viac model is probably based on yearly premiums increase model but I need to check.
Hi GP,
Yes, VIAC is based on premiums increase, so the price will increase over time. This is a model I don’t like, but I don’t know whether it’s cheaper or more expensive.
220 CHF for 300K life insurance sounds very fair.
Hi Baptiste, interesting article. I would add that you also have the option to get a pure risk life insurance and put it under the 3a setup and therefore be able to deduct the yearly premium from taxes. It is not much but better than nothing considering that the only other 3a one should have is the banking one which is more flexible in terms of mandatory payments and you can adapt it. In my case I’ve done it with annual premiums with possibility to cancel the life insurance any time (just stop to pay the premium and the insurance stops). Additionally, always check if your employer has discounts with some providers as I got a good offer doing that.
All the best,
Cesar
Hi Cesar,
Are you sure you can use a pure risk life insurance under the 3a premiums? This means you do not accumulate any capital. And since the premiums are very low, it would make little difference, no?
Good point about discounts with providers!
I can confirm that, I have also a pure risk life insurance running under 3a
Great article. VIAC has a partnership with Helvetia. I have my life insurance with them, and the price is reasonable. You must have a 3a with VIAC tho.
Thanks for sharing. This may indeed be interesting if you already have a VIAC account.