Saving insurance may seem confusing in its name – is it now. No problem, because savings insurance is now clearing.
Savings insurance is ideal for long-term savings, but is not the only option for savings. Before signing contracts, it is a good idea to look at other options, such as savings accounts. You can compare savings accounts in our comprehensive savings account comparison.
What is Savings Insurance?
The purpose of savings insurance is to accumulate savings for the future by negotiating an insurance contract with an insurance company. The insurance can be collected either by paying smaller amounts gradually, but generally larger lump sum payments are also possible. This long-term savings generates a sumptuous sum, which you get for your own use at the end of the insurance contract. If you save on insurance with only a small but large one-time payment, you can also talk about investment insurance.
Savings insurance is a life insurance contract which is concluded for a specified savings period, usually at least five years. The insurance covers death insurance, ie if the insured dies during the insurance, the insured will be paid a death sum. The beneficiary’s order is made in writing before the insurance becomes effective, and even overrides the will.
In unit-linked policies, the return on insurance is tied to investment activities. Investment targets are selected based on the policyholder’s risk tolerance and return willingness, as with other investment activities. However, savings insurance differs from traditional investments in that the policyholder does not directly own the investment, but the object of the insurance is the value of the investment.
Default rate insurance
Interest-based insurance can also be called interest-based or defined-benefit insurance. In this case, the return on insurance is tied to some kind of interest, which is usually lower. The interest rate may be, for example, Euribor or it may be determined by the performance of the insurance company. Particularly in interest-linked insurance savings, one should be careful that insurance costs do not increase above the interest rate.
Taxation of savings insurance
Savings insurance is often advertised because of the tax benefits they offer. However, the laws are changing and, for example, there will be no free contribution to inheritance tax from 2018 onwards. In the past, in the event of death, a close relative was able to receive inheritance tax of € 35,000 free, and a widow up to € 50,000. Savings insurance in the form of gifts is taxed at the rate of the gift tax.
Through savings insurance, active investors can swap investment items without tax on their appreciation or interest rates, as taxation is only provided when insurance savings are withdrawn. Occasionally, however, the insurance company may charge transaction fees for the change of portfolio.
There are always certain costs involved in maintaining an insurance policy, whether or not savings insurance makes a profit. These costs may include, for example, percentages of insurance premiums, percentages of annual management fees for savings themselves, miscellaneous transaction fees, repurchase costs, which is, expenses for early retirement savings, and premium insurance for maintenance of death insurance.
Savings insurance should be as careful as a carrot, and contracts should not be signed until the terms have been carefully considered. All expenses must be taken into account when calculating the potential income from savings insurance.
Is Savings Insurance worthwhile?
Because of the costs involved in savings insurance, you should carefully consider whether to take out savings insurance. If you are interested in long-term savings, you may want to look at different forms of investing or savings or fixed-term accounts before making a decision.