It is not easy for savers in times of low interest rates. Because of the zero interest rate policy of the European Central Bank (ECB), many traditional forms of savings are no longer worthwhile. Nonetheless, life insurance is still seen as a secure retirement plan for many people. But there are a few things to consider. We have summarized here what young professionals in particular should pay attention to when it comes to retirement provision.
The insured people usually pay monthly contributions to life insurance for decades. If the contract expires after a mutually agreed date, the insurance pays the entire savings amount in one fell swoop. Protection against death usually only makes up a small part of the contributions. The focus is on long-term savings.
Save with classic life insurance
Classic life insurance is also called “capital-forming life insurance”. This means: the insurance company takes the entire savings amount and invests the money in the financial markets – thus creating capital. In the past, insurance companies often lured savers with good arguments: at the beginning of the 2000s, the contracts still had a lucrative guaranteed interest rate. For example, just under three percent. However, this is rather utopian today in view of the low interest rates for new deals.
In addition, one must not forget: the insurance can also deduct costs from a guaranteed interest rate. For the bank advisor or for the investment manager for example.
Questionable “policyholder participation”
Insurance companies often advertise the so-called surplus participation. According to the financial expert Saidi Sulilatu from “Finanztip” one should take a closer look: “If the insurance company generates a big plus in the financial markets, the policyholders get something from it. A promise that is not necessarily as attractive as it sounds.”
Because many insurers have quasi canceled this promise for cost reasons. You just couldn’t afford it anymore. You should therefore keep a close eye on the size of the profit participation – it is often very low. However, one positive aspect remains: the later payments are tax-free.
Old life insurance should continue to run in some cases
To determine whether or not it is worth taking out life insurance, this is the Calculator on the “Finanztip” page is helpful. “Finanztip” is part of a non-profit foundation and operates an independent consumer portal.
Not all contracts are unprofitable. It can make perfect sense to keep an old life insurance policy running. And then when the guaranteed interest after deducting the costs is still over two percent and thus compensates for the inflation rate. However, most insurance companies no longer offer such conditions for new contracts due to the low interest rate.
Term life insurance: when it makes sense
With term life insurance, long-term saving is not the focus. Because you don’t build up capital with it. The contributions are just the cost of insurance coverage. In some cases, such insurance can be useful: For example, if a real estate loan has to be paid off, but only one of the partners is the main earner.
Such a contract makes sense until the time the property is paid off or until the children are old enough to take care of themselves.
Beware of additional insurance
Nowadays, taking out life insurance is often associated with integrated supplementary insurance. Savers should be careful here. Because, for example, the complicated word “additional occupational disability insurance” can hide unnecessarily high costs.
In such cases, you should compare with the competition or check carefully whether you even need the additional insurance.
Allianz abolishes premium guarantee
It’s a creeping farewell: In view of the persistently low interest rates, more and more insurance companies are shedding their traditional contracts. Because they have become too expensive for them. A new contract becomes less attractive, especially for people who do not want to take high risks. From the beginning of 2021, for example, the Allianz Group will abolish the previously always guaranteed payout of 100 percent of the saved savings contributions. A policy with a classic guarantee then no longer exists.
The only exceptions are Allianz pension products for which the premium guarantee is required by law. For example with company pension schemes. Instead, Allianz is relying more and more on risky investment products such as stocks in order to cushion the low-interest phase with higher returns. The lower the contribution guarantee, the higher the proportion of “opportunity-oriented investments”, according to Allianz.
The insurance market leader is showing the way and many other insurance companies could soon follow suit. A reaction to the ongoing phase of zero interest rates. And so more and more classic savings offers are leading a niche existence.
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