Life insurance/assurance

15 posts in this topic

Hi All,

 

 

So I am considering getting some life insurance/assurance (not sure which yet). But I was wondering if there is some way of determining how much one should in insured/assured for?

 

It is just done to how much you want to receive (or pay in premiums), or should it be based on your annual salary?

 

i.e. Total insured amount = 25% of your annual salary? 100% of your annual salary?

Should it differ if you get life insurance compared to assurance?

 

If you get life assurance, when should it pay out? After retirement?

 

 

Any advice would be useful,

 

thanks.

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Do you want life insurance so that it pays your loved ones a nice big lump of cash when you die?

 

Or do you actually just want some kinda savings plan?

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I calculated how much is needed to be paid out. For example, do you have children, a mortgage etc. If so, how much does your spouse need to pay the mortgage and support the family? I also thought about my wife's education level and her ability to get a job. Fortunately for me it's good.

 

I went for an assurance (annuity) that guarantees a certain (albeit low) interest rate but any extra they make from investments (which is probably none now) to be paid out by a certain year from now. You could easily specify that it should be when you are 65 if that is when you want the money back. At this stage, I am happy it has a guaranteed interest rate considering the current climate. I also have disability insurance in it (Berufsunfaehigkeit) because that could be just as financially devastating as dying when you think about it.

 

HTH

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i.e. Total insured amount = 25% of your annual salary? 100% of your annual salary?

Should it differ if you get life insurance compared to assurance?

 

25%? That would barely be enough to cover the expenses your survivors would incur to wrap up your affairs. Disposition of assets (If you have any), debts, property, apartment, transportation of body to burial location, headstone, etc.

 

Do you have a spouse? Children? Want them to go to College?

 

The general rule of thumb is 5 - 10 times your annual salary, with adjustments for inflation. You can lower the amount depending on savings, retirement accounts, and pensions (both private & government).

 

I always think the best rule of thumb is to leave the survivors a lump sum since you'll never be able to plan for the events that can occur in "their" future. Obviously there should be some limitations if the only survivors are children. Annual installments to cover education and basic needs until graduating college. Then a graduation present. And maybe a final payment when the children are 25-28. That way you avoid giving a lump sum to a young adult who could blow through it and save nothing for the future.

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you should only consider a life-insurance if you have loved-ones/dependents who will face next to their grief a financial catastrophy in case of your untimely demise...

 

The amount should be enough to cover your family for several years and/or a mortgage, if one is existing. So, check your fixed costs for rent, living expenses and factor in (in case of children) that they grow up and may need additional amounts for school/college.

 

What you should avoid is a combination of life-insurance with saving/pension plan IF you do not have dependent who really need the life-insurance money in case of your death. That is a typical mistake Germans make and there are thousands of you, single Germans outthere who waste 30% or more of their monthly savings on the life insurance costs of these plan for a coverage they do not need.

 

So, this:

 

 

If you get life assurance, when should it pay out?

 

and this

 

I went for an assurance (annuity) that guarantees a certain (albeit low) interest rate but any extra they make from investments (which is probably none now) to be paid out by a certain year from now. You could easily specify that it should be when you are 65 if that is when you want the money back

 

can be a serious mistake in my professional opinion IF you do not actually need the life insurance part of the product. And I am joint by the German consumer protection agency (Verbraucherschutz) and the Sfitung Warentest which both warn against the combination of life insurance (risk coverage) and pension planning/savings. It also make you less flexible in times when cash is short in contrast to having two separate plans, in which case you can stop the savings plans but just keep up the risk coverage.

 

On top of that, these combined plans usually come with a huge up-front cost deductions and all the money you pay into them during the first 1-2 years is lost on commissions and administrative costs. This is going to harm your profitability in the long run if you ever have to interrupt or stop such a plan (which happens in about 30-40% of the cases).

 

So, get yourself an independent advisor (not a typcial German salesman) and set up plans in such a way that they fulfill your needs first and not do noit primarily fill up the pockets of the sales person.

 

Cheerio

 

 

 

P.S.: there is one tiny exception where even I must admit that a combination of an insurance and a pension plan makes sense so much tax wise that it can be considered as a good choice indeed: an occupational disability insurance with a so-called RÜRUP- or Basis-pension plan. But that is a different matter...

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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If you have a family, definitely go for term insurance ie you die, there´s money for the family.It´s also possible to have this in a way that payment will also ensue before you die eg you have a critical illness and are not expected by the doctors to live for over one more year.This would maybe give you time to sort a few things out with your dependents or go on that final world cruise or whatever.The interesting point: if you don´t die in that year, you don´t have to pay the money back!

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Good point Starshollow. I need the life insurance part and was not happy about paying term life and getting not much in return except the insurance for a high price. I shopped around and got the deal I found would keep the term part low, insure principal + inflation and give my family what they need if I kick off. It is by no means my pension and in my mind is totally outside of my retirement savings. The problem I have with term life is that the cost is high and the money is sunk.

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rhody: first of all I must applaud you for being one of the - unfortuantely - few people to have taken care of income protection through an occupational disability insurance. Since this is one of the three really important insurances everybody ought to have I am always surprised as how many people leave this huge asset (the ability to generate income through work) unprotected.

 

However, I can not follow your line of reasoning about having a "Kapitallebensversicherung", i.e. life insurance policy with an investment part. You say above:

 

 

was not happy about paying term life and getting not much in return except the insurance for a high price

AND

 

 

The problem I have with term life is that the cost is high and the money is sunk

What you somehow suggest or believe is that the insurance coverage is less expensive with an investmet life insurance than with a term life insurance. Why, now, should this be the case?

Each insurance has to compute your risk of an untimely death based on the same criteria: age, gender, health status and consumption of "bad" products such as nicotine. While there are some small variations in the risk assessment between some insurances, these differences are only minor and have small effects on the actual price of the insurance, administrative costs and commissions being the more important factor.

Thus the price you pay for the coverage of the risk of your death is nearly the same in each insurance product. The only thing that happens in an investment life insurance policy is that you pay MORE on top of the risk and get this more money returned with interest. At least in the past this was entirely muddied by the insurances because you could not really see how much money went into the life insurance coverage and how much into investment. In new quotes the insurance have to show how much of your money goes into life insurance coverage and how much into investment. Thus it is now easier to compare the actual costs for the coverage within such a contract with a term life insurance and find a the best priced coverage in the end. But in the end, if you survive until you are 65 or older (depending on how long your policy runs) you will have "sunk" about the same amount of money for the coverage with either insurance - which is what an insurance is for, after all: coverage. If you pay 30 years into a (obligatory) car insurance and have never had an accident, the money is sunk just the same. In effect it is not sunk but the price you pay for the coverage.

 

The combined investment and life insurance policies have the following grave negative points to them:

a) a term life insurance is paid pro rata for the just the coverage you need. An investment life insurance charges a higher amount (in order for you to get money invested) as monthly contribution but the investment actually only starts after some time because in virtually all cases through "Zillmerung" the administrative costs and notably the commission for sales are deducted up front in the first years. So you are paying for a good while costs for investments yet to make and if at any point in the future you have to interrupt or stop the plan, you will find that your total yield is way below par because of that

B) in Germany you'll get a guaranteed interest on your savings. What most people do not know is that the guaranteed interest is paid ONLY on the savings share of your monthly contributions. The STIFTUNG WARENTEST has estimated that if you buy your investment life insurance from a "Direktversicherer" (i.e. an insurance not available through brokers/agents etc), about 34 EUR out of 100 EUr paid in per month are lost for risk coverage and administration. If you buy your insurance through a sales agent, the costs are actually more like 48 EUR (or 48%) out of your monthly 100 EUR contributions. But only on the remainder, i.e. 66.- or 52.- EUr will you get the guaranteed interest.

c) appart from the guaranteed interest, you are investing in a black box. You will onlyget higher profits than the guranteed (low) interest if the insurance can invest your money with loads of profits. In Germany at least per law the insurance are not allowed to invest more than 30% of a life insurance's savings share into stocks etc. (even under these conditions they have often done rather poorly in the past), most insurances have to relay on bonds and real estate to generate profits. It is currently well know among professonals that soon the insurances will have to admit that they can hardly sustain the guaranteed interest anymore (and only do so by selling of assets) and will not generate much in they way of excess profits on top of your guaranteed interest. Due to you being locked into the contract (because of the life isnurance coverage part and the pre-paid costs for the whole duration, you can hardly react to that.

 

Yes, life insurances look currently more profitable than, say, mutual funds. But that is only a snapshot and no long-term view. If you want to have the security you can still invest in secure products without mixing up insurance and investment and without prepaying the cost for selling you the stuff. But I would usually not offer anyone such a product with very very limited exceptions to this rule because it would be giving someone bad advice, professionally speaking.

 

Sorry if I have burst your bubble, but that is the way it is. Don't trust me, read for instance page 204 ff in the great, objective and unbiased brochure from Stiftung Warentest about private pension planning "Private Altersvorsorge". There they explain why a Kapitallebensversicherung is not somethign to be recommended... It is just a myth that you can actually "earn" money with these life insurance as a client and thus reduce the costs for the coverage of protecting your life. You pay extra for the money you'll get repaid in the end... yet somebody is indeed earing money with that, a lot actually. But nobody is gonna tell you because a huge sales industry lives from that misunderstanding - and quite well, I might add, just look at Mr. Maschmeier from formerly AWD or, better even, Mr. Pohl from DVAG. They and their sales organisations generated the biggest profits/commissions with life insurance products - and not the term kind, mind you.

 

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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@Starshollow Hey, I have a question - i'm in the process of getting a mortgage and the bank is requiring me to have life insurance in case something happens to me or my wife and the other needs to pay for the mortgage on their own. 

 

How much is a policy usually? And is it better going with the bank or a separate company?

Thanks !

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that requirement is not too uncommon... (though in my opinion, the banks should focus more on mortgage applicants having a good occupational disability or critical illness coverage )

 

Definitely get the insurance from a separate company (i.e. thru a broker or a really good online platform like Check24). While it is strongly recommended to use an independent advisor for insurances like health insurance, disability coverage (income protection), critical illness coverage etc (because there an in-depth  knowledge of the terms&conditions is much more important  for comparing than the monthly insurance premiums), term life insurance (where only the risk of death is covered without any additional unnecessary "savings" component involved) is fairly straightforward. Because there is little legroom for insurances about you being death: either you are or you are not. if you are, the insurance needs to be paid.  However, looking at the financial stability of the insurance company is important if the contract is to run for 20+ years. And you need to understand the difference between the premium to be paid initially (Zahlbeitrag or Nettobeitrag) and calculated risk premium (Bruttobeitrag). If the gap is too big, then you'll be paying soon much more than the initial premium. So, in the end, some independent advice may still be helpful, but you can't do much less wrong with a term life insurance thru an online platform than with many other forms of insurances. 

Anyway: do not fall for the trick of the bank to make extra commission by pushing you into one of their term life insurances...usually they are much more expensive than others and not in your best interest.

 

Cheerio

 

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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On 4/1/2009, 9:26:55, Starshollow said:

rhody: first of all I must applaud you for being one of the - unfortuantely - few people to have taken care of income protection through an occupational disability insurance. Since this is one of the three really important insurances everybody ought to have I am always surprised as how many people leave this huge asset (the ability to generate income through work) unprotected.

 

However, I can not follow your line of reasoning about having a "Kapitallebensversicherung", i.e. life insurance policy with an investment part. You say above:

 

 

AND

 

 

What you somehow suggest or believe is that the insurance coverage is less expensive with an investmet life insurance than with a term life insurance. Why, now, should this be the case?

Each insurance has to compute your risk of an untimely death based on the same criteria: age, gender, health status and consumption of "bad" products such as nicotine. While there are some small variations in the risk assessment between some insurances, these differences are only minor and have small effects on the actual price of the insurance, administrative costs and commissions being the more important factor.

Thus the price you pay for the coverage of the risk of your death is nearly the same in each insurance product. The only thing that happens in an investment life insurance policy is that you pay MORE on top of the risk and get this more money returned with interest. At least in the past this was entirely muddied by the insurances because you could not really see how much money went into the life insurance coverage and how much into investment. In new quotes the insurance have to show how much of your money goes into life insurance coverage and how much into investment. Thus it is now easier to compare the actual costs for the coverage within such a contract with a term life insurance and find a the best priced coverage in the end. But in the end, if you survive until you are 65 or older (depending on how long your policy runs) you will have "sunk" about the same amount of money for the coverage with either insurance - which is what an insurance is for, after all: coverage. If you pay 30 years into a (obligatory) car insurance and have never had an accident, the money is sunk just the same. In effect it is not sunk but the price you pay for the coverage.

 

The combined investment and life insurance policies have the following grave negative points to them:

a) a term life insurance is paid pro rata for the just the coverage you need. An investment life insurance charges a higher amount (in order for you to get money invested) as monthly contribution but the investment actually only starts after some time because in virtually all cases through "Zillmerung" the administrative costs and notably the commission for sales are deducted up front in the first years. So you are paying for a good while costs for investments yet to make and if at any point in the future you have to interrupt or stop the plan, you will find that your total yield is way below par because of that

B) in Germany you'll get a guaranteed interest on your savings. What most people do not know is that the guaranteed interest is paid ONLY on the savings share of your monthly contributions. The STIFTUNG WARENTEST has estimated that if you buy your investment life insurance from a "Direktversicherer" (i.e. an insurance not available through brokers/agents etc), about 34 EUR out of 100 EUr paid in per month are lost for risk coverage and administration. If you buy your insurance through a sales agent, the costs are actually more like 48 EUR (or 48%) out of your monthly 100 EUR contributions. But only on the remainder, i.e. 66.- or 52.- EUr will you get the guaranteed interest.

c) appart from the guaranteed interest, you are investing in a black box. You will onlyget higher profits than the guranteed (low) interest if the insurance can invest your money with loads of profits. In Germany at least per law the insurance are not allowed to invest more than 30% of a life insurance's savings share into stocks etc. (even under these conditions they have often done rather poorly in the past), most insurances have to relay on bonds and real estate to generate profits. It is currently well know among professonals that soon the insurances will have to admit that they can hardly sustain the guaranteed interest anymore (and only do so by selling of assets) and will not generate much in they way of excess profits on top of your guaranteed interest. Due to you being locked into the contract (because of the life isnurance coverage part and the pre-paid costs for the whole duration, you can hardly react to that.

 

Yes, life insurances look currently more profitable than, say, mutual funds. But that is only a snapshot and no long-term view. If you want to have the security you can still invest in secure products without mixing up insurance and investment and without prepaying the cost for selling you the stuff. But I would usually not offer anyone such a product with very very limited exceptions to this rule because it would be giving someone bad advice, professionally speaking.

 

Sorry if I have burst your bubble, but that is the way it is. Don't trust me, read for instance page 204 ff in the great, objective and unbiased brochure from Stiftung Warentest about private pension planning "Private Altersvorsorge". There they explain why a Kapitallebensversicherung is not somethign to be recommended... It is just a myth that you can actually "earn" money with these life insurance as a client and thus reduce the costs for the coverage of protecting your life. You pay extra for the money you'll get repaid in the end... yet somebody is indeed earing money with that, a lot actually. But nobody is gonna tell you because a huge sales industry lives from that misunderstanding - and quite well, I might add, just look at Mr. Maschmeier from formerly AWD or, better even, Mr. Pohl from DVAG. They and their sales organisations generated the biggest profits/commissions with life insurance products - and not the term kind, mind you.

 

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.

Bumping up this fine post by Starshollow 10 years ago!!! And it is STILL true.

Germans as a whole still believe in unicorns re what life insurance is. Judges, lawyers - they all have two or three of these crappy Kapitallebensversicherungs/Rentenversicherungs contracts. 

Separate your death ( however unpalatable that may seem ) from your investments.

 

The cheapest way to secure your family´s livelihood in case of the main breadwinner´s untimely demise is through term life insurance/ Risikolebensversicherung. Death is death. Payout.

 

One problem for expats, however...the German insurance companies don´t like people with a short  term residence permit..so tough for non-EU etc citizens without a long term permit. Mind you, the same goes for pension plans..they don´t really want you.

I am a professional independent insurance broker and authorised advertiser. Contact me.
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12 hours ago, john g. said:

Germans as a whole still believe in unicorns re what life insurance is. Judges, lawyers - they all have two or three of these crappy Kapitallebensversicherungs/Rentenversicherungs contracts. 

I also do, but at least I´m getting a guaranteed (almost) 4% yield because the contract is from 1985 which sort of reconciles me with the fact that I wasted money in the past (and I don´t mean by not passing away).

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42 minutes ago, john g. said:

But not 4 per cent of what you paid into the “ black box.” 

4 per cent of what you paid in  minus enormous costs.

 

https://www.youtube.com/watch?v=BMMqKFzsPss

 

I am a professional independent insurance broker and authorised advertiser. Contact me.

Unfortunately, my contract is older than those covered by the ruling this video is about. But at least I stopped paying further contributions several years ago, so that I can now look forward to the 4% guaranteed yield (ok, slightly less because of administration charges) on what I´d get if I´d had it paid out now (it´s a contract which gives me the option to have it terminated anytime between when I´m 60 and 65, which I am).  I´know, I shouldn´t have entered into that contract in the first place but that´s what happens if you trust insurance brokers B). Not even sure they were brokers even though they were offering contracts of many companies. Water under the bridge now anyway.

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I remember going into my local Haspa years ago and the person in front of me enquired about a pension.

The woman at the counter turned round to a colleague and said : “ Maria, hast Du Zeit fuer eine Lebensversicherung? “

 

So superficial...

I am a professional independent insurance broker and authorised advertiser. Contact me.
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