Types of life insurance
Often people talk about life insurance. A differentiation is important, because the different species differ significantly:
- Term Life Insurance : The insurance amount of the term life insurance is paid to the relatives of the insured person if he / she dies – but only if the death takes place within the contract period.
- Endowment life insurance : Here, too, the amount is paid out to the family of the insured if it dies within the term. If this does not happen, the amount will be paid to the insured person at the end of the term. Therefore, life insurance is often more expensive compared to term life insurance.
- Investment life insurance: This form of life insurance is very similar to endowment life insurance, but here the funds paid in are invested in funds.
When does the payout take place?
When the sum insured is paid depends, among other things, on the duration of the contract. This is determined jointly by both contracting parties. As a rule, it is between 25 and 30 years.
If a capital or investment life insurance policy has been taken out, the sum insured will be paid out at the end of this term. However, if the insured person dies during this time, the family will be paid out at that time.
Termination of life insurance prematurely
Those who take out a life insurance policy would like to know themselves or their relatives in financial security. For years, insureds pay contributions: terms of 20 to 30 years are quite common. And yet, only every second life insurance exists until the planned payment point – all others are terminated early. Insured persons then only receive the so-called surrender value.
Premature termination usually does not make sense
But even if the emergency is so great: the termination of a life insurance is a bad deal. Even a recent judgment of the Federal Court has not changed much. Although the judges criticize massively that the premature termination of a contract leads in particular in the first years after conclusion to high losses (file IV ZR 162/03). But even the minimum sum, the insured must get back after a termination, does not even make the paid contributions.
Because the repurchase value is determined by the sum of the contributions plus the statutory minimum interest minus the cost block that the insurance company can claim, especially in the first contractual year. Even a long time later there is not everything back. “The repurchase value increases considerably as the life insurance policy matures – especially in the last few years before the expiry of the contract,” says Stephan Gelhausen of the German Insurance Association.
Why are life insurance companies usually terminated?
1. Too low returns
Savers receive less and less premium from the insurance providers for their money. While yields were still around six percent a few decades ago, today they have reached around three percent. With short contract terms, the yield is often only 1.7 percent and thus covers just the current inflation rate.
2. Guaranteed payout decreases
Life insurance is especially needed because it stands for a high level of security. However, this has declined in recent years. This is shown by the guaranteed interest rate, which was around four percent by the year 2000 and reached around 1.75 percent in 2015. For new contracts from 2015, this was even lowered by another percentage points. If you are lucky enough to have an older contract with a higher guaranteed interest rate, you should think twice about canceling it.
3. Sudden need for money
If the car breaks down or the house has to be renovated, suddenly a high sum of money is needed. Then it seems attractive to cancel the insurance and pay off the accumulated sum.
If the lack of money is likely to be a short to medium-term “ailment”, you should talk to your insurance company. As a rule, the insurance company meets its customers. The alternatives are many.
4. Change of personal situation
The monthly contributions are determined jointly by the customer and the insurance provider when the contract is concluded. However, if the personal situation of the insured person changes, the contributions can often no longer be paid. This is the case, for example, with loss of a job or serious illness. You should therefore agree as possible contributions that do not fully exhaust your financial resources – so you can pay even in financial difficulties.
5. Insufficient advice before conclusion of insurance
Often, inadequate advice is reason for termination of life insurance. This is the case if the wishes and needs of the policyholder are ignored. If, for example, he is interested in a short-term investment and gets a life insurance with too long a term, it often comes to a termination.
Take time for the advice. If you feel bad or too short advice, look for another, more competent consultant – our consultant search will help you.
Basically, life insurance ends either with the end of the contract or the death of the insured. However, both parties can terminate the insurance prematurely – but the insurer is usually only allowed to do so if the contributions have not been paid for a long time. If you cancel the life insurance yourself, you are entitled to the so-called surrender value.
What is the surrender value?
This is determined by contract and is calculated by deducting from the contributions paid so far the imputed costs. These costs include, for example:
- Commission for the insurance agent who signs the contract with you
- Fees for cancellation
- Administrative costs, which amount to about two percent of annual contributions
Consider alternatives to termination
The repurchase value is always less than the sum of the paid-in contributions. Therefore, you should consider carefully whether you prefer not to make the contract free of charge or to look for another alternative.
Do I have to observe notice periods?
As a rule, the period of notice of your life insurance depends on which payment interval you have chosen:
||four weeks to the next quarter
||four weeks to the next half year
||four weeks to the end of the year
Often, the notice period for life insurance is four weeks before the end of the calendar year. That is, you should cancel before the 30th of November of each year if the termination is to be effective for the following year. Otherwise, life insurance will continue for the next year.
When is a termination excluded?
In some exceptional cases, the termination is excluded or only possible with restrictions. This is the case, for example, for the following contract models:
- Rürup contract: here a termination is completely excluded
- Direct insurance: a termination is usually not possible
- Riester contract : a termination is possible, but then supplements and tax benefits will be omitted
Cancel the life insurance: That’s the way it works
Whether you cancel your existing life insurance or not, you should think carefully. At first glance, there are some advantages. However, there are alternatives to termination, which are usually more lucrative.
The benefits of termination
- You will receive the surrender value
- You no longer have to pay monthly contributions
- You can take out a life insurance policy with better conditions
- You can invest your money elsewhere
This can help you especially with financial bottlenecks, as in the following situations:
- In case of job loss
- Inability to work due to illness or accident
- During education, training or study
- In case of sudden need, for example for repairs
The disadvantages of termination
Although the termination of life insurance at first glance certainly brings benefits, usually outweigh the disadvantages:
- Payment is below the paid contributions
- Often a cancellation fee is due
- Conditions such as high returns on old contracts are lost
- There are more lucrative alternatives to termination
If you have decided for personal reasons to terminate your life insurance, then you should do the following:
So you cancel properly
1. Design a letter of termination.
You must cancel the contract in writing. The letter should necessarily contain the following points:
- insurance number
- Address of the insurer
- termination date
- own bank account for refund
- Personal signature
2. Send the written notice of termination (preferably by registered letter).
3. Wait for the confirmation letter.
4. Use your bank statements to verify that the surrender value has been reimbursed.
Alternative: sell life insurance
Those who can not keep the contract can resell the policy to so-called police investors. This investor then has the right to the entire payout amount at the end of the term.
For this he pays all contributions. On the other hand, he pays you a purchase price – this is usually more than the amount that the insurer would pay you in case of termination. If the previously insured dies within the term, the dependents still receive the sum insured.
- Disbursement to relatives in case of death remains
- Contributions do not have to be paid anymore
- Lucrative as a termination
- Life insurance can usually be purchased back
- Payment amount in case of non-death is no longer required
- Often only possible if previously a certain minimum amount has been paid (usually from 5,000 euros)
Another advantage arises when a policy concluded before 2005 has to be given up before the end of twelve years. In case of termination, the accrued interest would have to be taxed. If the contributions could be accommodated as special expenses for the tax, the task is subject to a subsequent taxation. Not on sale.
Which policies are suitable
Not every life insurance can be so elegantly separated. The acquiring companies attach importance to the fact that the policy is already a little valuable. Depending on the company, the surrender value must be between € 5,000 and € 10,000. Often the buyers also value a manageable remaining term. It may be between ten and 25 years. However, fund-linked policies and direct insurance through the company are not available for sale at all.
Other alternatives to termination
In addition to the sale of your life insurance, there are other alternatives. Which one comes into question depends on your personal needs:
To make life insurance free of charge
In principle, there is the possibility of having life insurance contributions free of charge. Then the insured person does not have to pay any contributions for a certain period of time. But a certain minimum amount is often necessary.
Whether you have reached this with your previous deposits, you should clarify in advance. The contribution exemption has the following advantages and disadvantages:
- Contributions do not have to be paid
- Contract remains
- The amount paid out is reduced by suspended contributions
- Any additional services are often omitted
This option is useful if you have temporary financial bottlenecks, but do not want to terminate the contract completely. Especially with old contracts with attractive conditions such as high returns, the contribution exemption is therefore recommended.
Reduce the sum insured
Does the monthly contribution pose financial difficulties? Then you can lower that amount. For example, you can do that by reducing the total payout.
Or you cancel any additional benefits such as the extended insurance in the event of accident. This also brings you as an insured both advantages and disadvantages:
- Only a portion of the contributions must be paid
- Contract remains
- Usually the payout amount is reduced
- Eventually additional services will be omitted
This alternative is also useful if you have temporary financial restrictions, but still want to keep your contract.
It is also possible to extend the term. Then there is the money just later, but the contributions go down. Temporarily, the contributions can also be paid from the accumulated surpluses. For a limited period, only the risk premium can be claimed.
Mortgage: Take credit on policy
If you have a life insurance policy, you can use it as collateral for a loan. This is especially attractive if you urgently need money, but your credit rating is usually insufficient for a loan. You pay your contributions as usual – the borrowed money must be paid back only at the end.
- No influence on insurance coverage and payment amount
- Enables loans even with low credit ratings
- Loans and interest must be paid off in one fell swoop
It is advisable to mortgage a life insurance policy if you need money without restricting your existing life insurance.