Life insurance in the siding –

life insurance on the siding

Life insurance has long been a lucrative business for insurers like Allianz

Life insurance has long been a lucrative business for insurers like Allianz

© IMAGO / Future Image

For decades, life insurance was one of the most popular old-age pension products in Germany. But the times are over. No wonder, because only very special policies are convincing

At the crime scene on Sunday, she still lives among relatives as a motive for murder: life insurance. Otherwise, the product, which for decades was part of the basic equipment of German savers, is practically dead. In any case, the new businesses are weakening: there are still as many old contracts as there are Germans. At the end of 2020, the General Association of the German Insurance Industry counted 82 million policies of various types, about half in the form of pension insurance. In this case, the insurance company pays an old-age subsidy in retirement. About a quarter of the policies are so-called classic capital life insurance policies. And the most modern version of unit-linked policies only have a market share of about three percent.

Both classic policies and unit-linked life insurance are in declining demand, and most life insurers no longer offer conventional policies. According to a study just published by the rating agency Assekurata, only one in four life insurers still offer new classic endowment life insurance policies. “The low supply makes it clear to what extent the former life insurer flagship has fallen out of favor with providers,” says Reiner Will, CEO of the rating agency.

The reason for the fall in supply and demand is the same: the old guarantors of a relaxed retirement are no longer paying off, neither for suppliers nor for new customers. This, in turn, is mainly due to the general level of interest rates during the last decade. Because life insurance is less insurance and more investment. Insurance premiums are made up of a minor risk component for life insurance and a savings component for old-age provision. The amount of the risk part is calculated from the average life expectancy, the age of entry and the physical condition. In the case of classic policies, the insurer guarantees a fixed minimum interest rate on the savings portion throughout the term. The guaranteed interest rate used to be three to four percent. Many insurers are now having trouble getting guaranteed benefits from previous contracts.

For new contracts, the government capped the guaranteed interest rate at a maximum of 0.25 percent this year. So, after costs and inflation are deducted, customers are losing money on this guarantee. It is not an attractive product for a saver. “Classic endowment life insurance is practically extinct,” says Stefan Adam, financial expert and honorary consultant at the Lower Saxony consumer advice center. He does not regret this fact: “Basically, the products have always been expensive.” Because when the guaranteed interest of the policies was still high, there were still very good conditions for the savings account, and with much lower rates.

Anyone who still buys life insurance today typically forgoes useless guarantees and primarily chooses unit-linked endowment life insurance with no premium guarantees. If you believe the insurers, these products are the famous “jack of all trades.” However, expert Adam complains. Because insurance turns out to be an expensive encapsulated fund: “It’s a meaningless outer wrapper for mutual funds.” In his view, high acquisition fees and high administration costs often eat into much of the return. Even if more and more providers move away from warranties, the credits to customers remain negligible.

If you want to buy life insurance that really deserves the name, it’s best to use term life insurance. It sounds similar, but it is something completely different: these policies have nothing to do with old-age provision, but instead provide economic support to relatives if, for example, the main breadwinner dies. The most important question is: Who needs money when I die? In most cases, these are family members and spouses who could face financial hardship as a result of death. Insurance is also useful to guarantee a real estate loan. In this way, the insured knows that the family will not lose the roof over their head in case the worst happens. That calms the nerves. The shorter the term of such real life insurance, the cheaper it becomes. Therefore, it is worth adapting the policy to the duration of a loan or the age of the children, for example.

Anyone who wants to make provisions for old age beyond term life insurance is better off making direct investments, such as funds or ETFs. Fees are lower, so more returns are retained in the portfolio. And you also save the costly warranty.

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