Cancelling life insurance in Switzerland
You should only cancel your life insurance if you have a good reason, as this usually results in a financial loss. Comparis explains what you should be aware of when surrendering life insurance, and what alternatives there are.
01.11.2022
Unsplash / Daiga Ellaby
1. Can I cancel my life insurance at any time?
In Switzerland, only life insurance held under pillar 3b can be cancelled at any time. You can also terminate pillar 3a life insurance. However, one of the following conditions must apply:
You reach the age of 60
You purchase owner-occupied residential property
You make value-preserving or value-improving renovations to residential property (partial withdrawal)
You repay the mortgage on an owner-occupied home
You permanently transfer your residence abroad
You become self-employed
You pay extra into an occupational pension (second pillar)
2. What is the surrender value of a life insurance policy?
If you cancel an endowment life insurance policy, you will receive some money from the insurance company under certain conditions. In this case, the insurance company will repurchase the rights to future benefits from the contract.
This surrender or conversion value depends on:
duration of the insurance
contractually fixed premium
transaction fees
How do I calculate the surrender value?
In the case of an endowment insurance policy, the surrender value is calculated as follows:
accrued actuarial reserve
+ accumulated surplus
– costs (which vary from insurer to insurer)
In the case of a unit-linked insurance policy, the surrender value is calculated as follows:
current value of the fund investments – unamortized costs
3. What are the risks associated with cancelling a life insurance policy?
Financial losses
Do you want to cancel your life insurance policy within just a few years of signing the contract? Beware of endowment life insurance policies with a cash value character: the surrender value from the third pillar is usually very low or even zero. This results in high financial losses compared to the amount deposited so far.
Problems with taking out a new policy
The older you get, the more expensive the policy is. Both health status and interest rates may worsen. Taking out a new life insurance policy at a later date is often more expensive or even impossible.
4. In which cases does it make sense to cancel the policy?
Cashing in the policy only makes financial sense in the following cases:
The capital released is put into an investment.
After tax, the investment returns are better than the life insurance.
5. What alternatives are there to cancellation?
Suspension
You no longer want to pay into your life insurance, but you don’t want to cancel either? If so, you can apply for a premium waiver. The insurance company invests the capital accumulated until the ordinary expiry of the insurance policy and pays interest on it. At the same time, you will lose your insurance cover.
Policy loans
Would you like to remain protected against risks, but want to temporarily stop paying premiums? You can ask the insurance company for a loan to finance the premium. You will pay back the policy loan at the end. The surrender value of the insurance serves as a security for the insurance company.
