Life insurance is enjoying growing success, in Switzerland as elsewhere. It is a relevant solution for protecting loved ones or building up savings for retirement. Before taking out a contract, however, it is important to understand how it works and the advantages and to know which life insurance to choose.
What is life insurance?
In summary, life insurance allows you above all to protect yourself and your loved ones from the vagaries of life. In some cases, it can thus protect the subscriber who is unable to work.
If this option is chosen, life insurance protects your loved ones from another risk of existence, this one inevitable, death. Indeed, in the event of death, the people who survive you inherit the capital of the life insurance, which spares them financial worries.
Life insurance can also, while protecting your loved ones, allow you to build up savings, particularly for retirement. By using the 3rd pillar comparison in Switzerland, you will find more easily the retirement provision solution that suits you best.
The different forms of life insurance
In Switzerland, life insurance contracts are divided into two main categories. First, there is what is called pure risk insurance. In this case, it is not a question of building up savings, but of preventing specific risks.
And first of all the risk linked to death. In this case, the beneficiary or beneficiaries of the life insurance are paid a capital sum. The subscriber himself therefore receives nothing during his lifetime. The second risk covered by this insurance is the inability to work and therefore to earn a living. Therefore, the subscriber is entitled to an annuity which compensates for the loss of income.
The second category is mixed risk life insurance. It is so called because it combines two functions. It also guarantees the payment of capital in the event of the subscriber’s death. But it also allows him to accumulate savings, which he can draw on the expiry of the contract.
How it works ?
In Switzerland, life insurance is a good solution to supplement your retirement. It can then fit into the system of pillars, which define the pension system. Life insurance then constitutes, if you wish, a voluntary form of provident fund, known as the 3rd pillar, which complements the 1st and 2nd pillars, which respectively concern state provident funds and professional provident funds.
In addition, life insurance can be taken out under a linked 3rd pillar contract (or 3rd pillar A). In this case, the subscriber is subject to certain constraints. Thus the choice of beneficiaries is not free, but defined by law.
Similarly, the withdrawal of all or part of the invested capital can only be done under certain conditions. In particular, it is not possible to withdraw your money before you have reached the legal retirement age. As for the payment of these sums, it is itself capped. On the other hand, the choice of a pillar 3B type investment is more free, but has fewer advantages.
The ability to withdraw funds placed in life insurance also depends on the type of contract chosen. Thus the subscriber of pure risk life insurance will not be able to receive his capital himself, reserved for his survivors. If he chooses a mixed risk contract, he can benefit from it at the end of the contract.
The benefits of life insurance are numerous. Depending on the type of contract chosen, it first provides the subscriber with significant financial security. This is particularly the case if, due to an inability to work, the insured suffers a loss of income.
In some cases, the sums saved in the context of life insurance represent additional income, which is very useful for supplementing the retirement pension.
This financial security also applies to loved ones. In the event of the subscriber’s death, the beneficiaries of the life insurance inherit the subscribed capital. These beneficiaries are most often the members of the family, designated even by law within the framework of a linked 3rd pillar type contract.
Furthermore, life insurance is a financial investment. As such, it earns you money. These sums therefore represent a financial reserve, which allows you to carry out certain projects, such as the purchase of a car or housing. It should however be remembered that, depending on the type of contract chosen, the withdrawal of the capital invested cannot be done at any time.
Finally, life insurance can entitle you to tax benefits. Under a linked 3rd pillar type contract, you are entitled to tax deductions, the extent of which depends in part on your professional status. The tax reductions linked to a free 3rd pillar type contract do not apply to the whole country but depend on the legislation of each canton. To go further in your reading and in your research, the OFAS offers a lot of information on social insurance.