Death benefits insurance in Switzerland

Find out here what you need to know about death benefits insurance – types, costs, benefits and how you can compare them.

Lara Surber Foto
Lara Surber

16.12.2021

A man helps his young son to ride his bike.

iStock / Liderina

1.What is death benefits insurance?
2.When is it a good idea to take out death benefits insurance?
3.How do I decide what amount to insure under my death benefits insurance?
4.Are there any tax savings associated with death benefits insurance?
5.What are the different types of death benefits insurance?
6.How much does death benefits insurance cost?
7.Compare death benefits insurance
8.Can I cancel my death benefits insurance?

What is death benefits insurance?

Death benefits insurance provides financial protection should the insured person die. The lump-sum death benefit is the amount that is paid out to the beneficiaries named in the policy, and is the same as the sum insured.

As is the case with income protection insurance, death benefits insurance can be taken out as straight risk insurance, or as an endowment policy. Endowment insurance contains a savings element in addition to risk cover.

When is it a good idea to take out death benefits insurance?

Under Swiss law, if an insured person dies, their family is protected under the first and second (state and occupational) pillars of the Swiss pension system. If one parent dies, the spouse and children (or only the children, in the case of co-habiting couples) receive benefits from the first and second pillars in the form of survivors' or orphans' pensions.

Death benefits insurance can provide those left behind with additional cover for financial stresses such as a mortgage or outstanding loans, or simply ensure that they are provided for financially.

  • Family: to protect your family or nearest and dearest from financial stress, it makes sense to take out death benefits insurance. While your children are still in education is a good time to do this.

  • Outstanding loan: a loan can be an enormous financial burden on your family if you die. Death benefits insurance could be used to repay any outstanding loans, for example. Being able to present this type of life insurance policy can also make it easier for the insured person themselves to get a loan.

  • Mortgage: as is true of a loan, mortgage debt may be too great a burden for a single person alone. In the worst case, their ability to pay may be cast into doubt if their partner dies. That is why death benefits insurance is worth considering in such cases.

  • Self-employed: Many self-employed people do not have a second-pillar (occupational) pension. Life insurance is a good idea in this case because there is no pension fund to pay benefits.

  • Business partners: you can protect each other by both taking out risk life insurance. However, risk cover can also be a good idea for business owners, shareholders and key employees, especially if you consider the financial implications of their absence.

Age limit for death benefits insurance

Death benefits insurance can only be taken out up to a certain age. The final age is the age the insured person will be when the insurance policy expires. Death benefits insurance under restricted (pillar 3a) pension plans often has a final age of 64 for women and 65 for men. This corresponds to the current (2021) state (AHV/AVS) retirement age. Death benefits insurance under unrestricted (pillar 3b) pension plans generally have a final age of between 75 and 80.

How do I decide what amount to insure under my death benefits insurance?

The amount to insure is a very personal decision that depends on your circumstances and your reason for taking out the insurance in the first place. The amount payable on death is limited, and can vary depending on the insurer. It rarely exceeds 400,000 francs, however. Consider how much your beneficiaries might need.

  • Families: as a rule of thumb, the amount of the sum insured for risk life insurance should be five times the gross annual salary, plus any debts. Work out how much would be required to pay for childcare or to secure your children’s education. Please note that the first pillar only pays a pension to widow(er)s for as long as the children are under 18.

  • Borrowers: insure the amount of the loan to ensure that your heirs can afford to pay it off.

  • Mortgages: check with the lender what amount you need to ensure that your surviving family can continue to afford your mortgage. If the mortgage is currently running against a property, interest payments as well as planned mortgage repayments can be protected by risk life insurance.

Depending on the type of loan, you can consider products with a decreasing or level sum insured. You can save a lot of money by choosing the insurance product carefully. A decreasing sum insured means significantly lower premiums.

  • Self-employed: think about how much the family will need without the income of the deceased.

  • Business partners: think about how much you would need if you were to owe your business partner for goods or services that were not delivered.

The experts at Comparis partner service Optimatis will be pleased to help you find the right solution.

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Are there any tax savings associated with death benefits insurance?

Yes, the annual premium for your death benefits insurance counts towards the maximum tax-deductible amount for pillar 3a contributions. Since pillar 3a is a restricted pension plan, the law clearly determines who receives the lump-sum death benefit.

By taking out death benefits cover in your pillar 3b pension scheme, you decide for yourself who should benefit, but you will not be able to save on tax.

What are the different types of death benefits insurance?

There are various types of death benefits insurance.

Death benefits insurance with a fixed sum insured

If you choose to keep the sum insured constant, it will be set at a particular figure when the insurance begins, and left unchanged for the whole of its term. This is recommended to secure your family's financial obligations. The lump-sum payout can be used to cover fixed expenses e.g. to reduce an existing mortgage or pay for children’s education.

Chart: Death benefits insurance with a fixed sum insured

Death benefits insurance with a decreasing sum insured

If you choose a decreasing sum insured, the amount will be set when the insurance begins and then fall by a pre-determined amount every year. If you choose this option, most life insurance companies will reduce the amount insured by the same degree each year. This is recommended for covering financial obligations that decline over time. This includes a mortgage on your home or a business loan, for example. As the sum insured gradually falls, so too does the premium you pay.

Chart: Death benefits insurance with a decreasing sum insured

How much does death benefits insurance cost?

Premiums vary significantly depending on the insurer, product (sum insured, level or decreasing), policy term and personal characteristics (age, state of health, gender). The premium for death benefits insurance is made up of a risk premium and a cost premium.

Risk premium for death benefits insurance

The risk premium is determined on the basis of the likelihood of the insured person's death. Aside from the amount payable at death, the insured person's age and gender have the greatest influence on the premium. Their general state of health and other related factors such as smoking also play a key role.

Cost premium for death benefits insurance

The cost premium is another component of the premium. It includes the costs of setting up the policy, debt collection and administration.

In general, insurance policies with a fixed term are cheaper than products you can take out online with a minimum term of one year. We recommend taking expert advice.

If you took out your life insurance at a non-smoker rate, you have to report any changes in accordance with the insurance conditions. You will then be switched to the smoker rate, which will increase your premiums.

Compare death benefits insurance

Whether you need death benefits insurance – and if so, what type – depends on your personal situation. What is clear is that the payout from the first and second pillars is not usually enough to cover the financial obligations of surviving loved ones in the event of the insured person's death. It is therefore all the more important to take out a private, third-pillar pension.

It is worth taking a close look at a range of products from different providers. Pay particular attention to the sum insured, term and conversion value of the policy. The experts at Comparis partner service Optimatis will be pleased to help you find the right solution.

Can I cancel my death benefits insurance?

Premium-free policy: instead of cancelling the policy, it’s worth asking the insurer for the current conversion value. Converting the policy ensures that the sum insured remains as it is in proportion to the premiums already paid. This is then called a premium-free policy. Comparis explains the other contractual details of life insurance policies.

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