What is life insurance?

There are many ways in which life insurance can help you provide for the future, depending which option you choose – straight term life insurance or a life policy with a savings element. The latter is particular attractive to those wishing to provide for retirement as well as ensure financial security for their family.

What are the different types of life insurance?

• Term life insurance in the event of death: This type of policy pays a fixed sum to the beneficiaries if the insured person dies within the insurance term. It is designed simply to provide financial security for surviving dependants. You can add cover for the risk of incapacity for work.

• Term insurance for incapacity for work: If you become unable to work because of illness, the benefits paid by accident insurance and the state and occupational pensions are often not sufficient to cover your loss of earnings. Life insurance can supplement these benefits and of course also pays out in the event of incapacity to work due to an accident. You can add cover for the risk of death.

• Endowment insurance: This covers the risks of death and incapacity for work but includes a savings element to build equity. When the policy matures, the policyholder receives a lump sum comprising the capital invested, any dividends and any interest accrued (insurers guarantee a minimum interest rate).

• Unit-linked life insurance: Endowment policies can also be unit-linked, which means that the savings capital is wholly or partially invested in a fund. Offering higher potential returns, these products can boost your retirement income – but they come with greater risk. The tax advantages are the same.

• Life insurance in the third pillar: You can take out life insurance either as a straightforward term insurance policy to cover death and/or disability, or term insurance combined with a savings element (endowment insurance). You insure a capital sum, which is paid out in the event of death (term insurance) or also when the policy expires (endowment insurance). You can also include cover for an annuity in the event of incapacity for work. Both types can be taken out as a restricted (pillar 3a) or unrestricted (pillar 3b) pension plan.

Life insurance in the third pillar