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Life insurance in Germany

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First things first

In life insurance, a distinction is made between whole life insurance and term life insurance. Term life insurance only contains a death benefit.

A classic life insurance policy or capital-forming life insurance policy offers both death cover and a savings component for retirement or old age.

In the past, whole life insurance was a very popular and well-interest-bearing form of investment. In the meantime, however, this form of investment is hardly profitable due to the low-interest phase. There are many better alternatives.

Funeral expense insurance is another way of providing for surviving dependents in the event of one's own death. However, the sum insured is significantly lower than for other types of insurance.

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Life insurance

Patrick Ott
Patrick Oliver Ott
Expert for insurance and finance
8. March 2022
what makes sense - what doesn't?

Difference between whole life insurance, term life inurance and funeral expense insurance

Term life insurance

Term life insurance serves solely to provide financial protection for surviving dependents in the event of one's own death. It is particularly important when the financial existence of a family depends on a single earner. If the sole breadwinner dies, the family faces financial ruin.

This type of life insurance makes sense when starting a family or buying a property. It is important to secure the loan instalment. Since term life insurance does not include a savings component, it is relatively inexpensive.

Experts therefore recommend taking out this type of insurance.
read more: term life insurance

Whole life insurance

Just like the model described above, the classic life insurance includes a death benefit for the surviving dependants. In addition, there is a savings contribution that is paid out when the insurance expires. This model is thus a combination of life insurance and pension insurance.

In the past, this variant was a very popular and profitable way of providing for old age, as the interest yields in the policies were very good. Today, however, the guaranteed interest rates are very low (only 0.25% in 2022). Retirement provision by means of life insurance is therefore no longer the optimal solution.
Read more: whole life insurance

Funeral insurance

Death benefit insurance is also a form of endowment insurance. It is used solely to cover the costs of burial and funeral. The sum insured is usually between € 5,000 and € 10,000. A higher sum insured can be chosen not only rarely.

This insurance makes sense for people who do not have real estate loans or other major financial obligations (no dependent children). Many people use this policy to plan their own funeral and avoid incurring costs to surviving relatives through their death.
read more: funeral insurance
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Alternatives to whole life insurance as a provision for retirement

When it comes to alternatives to life insurance, it must be made clear that this refers to the accumulation of assets. In many life situations, the death benefit of term life insurance is the most sensible option for providing financial security for surviving dependents. However, due to the current low interest rates, endowment life insurance is no longer recommended and there are more sensible concepts for asset accumulation.

1. Private pension insurance

The most frequently used private pension insurance in the past was the Riester and Rürup models (basic pension). They offer tax advantages with which the state supports private pension provision. When choosing the appropriate model, it depends above all on your professional status: Are you an employee or self-employed? This determines the amount or possibility of the subsidy.

Depending on the investor's risk behavior, Riester and Rürup contracts can be concluded as unit-linked variants / unit-linked policies. This allows the investor to benefit from gains on the stock market.

2. Company pension scheme

A company pension scheme (bAV = betriebliche Altersvorsorge in German) is defined in Germany as the building up of a supplementary pension through the employer from contributions of the employer, the employee, or both combined.

Since 2021, employers have been required to offer all employees the option of a company pension plan. If the employee uses this option, the employer must pay at least 15% of the savings contribution. For employees, the company pension scheme is the most sensible model of state-subsidized retirement provision.

3. Investment in real estate

Buying real estate has always been an investment option. Before investing, the current interest rate environment and the real estate market should be considered. Especially for this long-term investment, which requires a high monetary investment and financing by a bank, experience and knowledge of the region is important.

An investment property in the wrong place can quickly lose value, but in the right region it can increase immensely in value. For investors, properties with tax advantages are particularly interesting, such as listed properties or investments in redevelopment areas.
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3. Investment in the stock market

Investing money on the capital market is an important asset class for asset accumulation today. The market offers almost endless possibilities and through numerous online brokers such as TradeRepublic, Scalable and Co. access to a securities account is very easy.

When investing in the stock market, you should distinguish between shares, ETFs and funds. The purchase of individual shares represents the highest risk, as you always have a complete risk of default here. ETFs and funds, on the other hand, are more broadly diversified. At CRCIE, we only offer investment in ETFs or funds and select them based on your long-term investment strategy.
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