Profit sharing in life insurance: what is it?
Life insurers share their surplus profits with policyholders. Where does this surplus come from, and what do you need to know about profit sharing? Comparis explains.
04.11.2022
iStock/assalve
1. What is profit sharing?
Life insurance can generate more profit over the life of a contract than originally expected. Some insurers pass on this surplus to their customers. This is done in the form of profit sharing.
Participation in the profits is optional. You can’t assume it will happen. On the other hand, there’s also no risk: if the insurer suffers deficits, your benefits won’t be reduced.
2. How does an insurance company share profits?
Surpluses arise from life insurance policies as follows:
Fewer claims (e.g. lower mortality)
Interest rates develop in favour of policyholders
Lower total costs
Good to know: even companies with a solid base are subject to short-term price fluctuations. However, they usually make profits in the long term thanks to their stability. What this means for you: the longer your life insurance policy runs, the greater the likelihood of sharing the profits.
3. How is surplus profit paid out?
One-off payment
At the end of your contract term, you’ll receive the surplus profit as a one-off payment. This is the total sum that has accumulated over the years.
Premium deductions
Insurers use this method to deduct the surplus contribution from your premium each year. This reduces your premium payment. In years with no surplus, you pay the full premium agreed in the contract.
4. Is profit sharing important when choosing an insurer?
As attractive as profit sharing sounds, only criterion to consider when choosing life insurance. You also need to consider other factors.
Premium calculation: life insurance with low premiums is often the better choice – even without profit sharing.
No guarantees: no-one knows in advance if there will be a surplus in a financial year. Past surpluses are no guarantee of future trends.
Taxes and life insurance: the amount and type of taxes vary depending on the type of life insurance and the payout. Read more on the subject in our overview of taxes and life insurance.
