How to choose Life Insurance in Switzerland?

Insurance in Switzerland

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:

  1. Term life insurance will cover you for a given time.
  2. 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:

  1. A couple with one person earning most of the income and little to no savings.
  2. A couple or person with several children at a young age.
  3. Adults close to retirement without much savings.
  4. 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:

  1. SafeSide at 131 CHF per year
  2. Generali at 257 CHF per year
  3. Basler at 276 CHF per year
  4. Vaudoise at 298 CHF per year
  5. Allianz at 340 CHF per year
  6. 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.

Learn more Insurance in Switzerland:

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All you need to know about Car Insurance in Switzerland

How to choose Life Insurance in Switzerland?

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Basic Swiss Health Insurance

Private insurance in Switzerland

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