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Cancelling your life insurance
For private investment in the 3rd Pillar, many Swiss employ a life insurance or a mixed life insurance policy that combines insurance protection with asset building. As an alternative to a savings option at the bank, the conclusion of a life insurance policy is possible both within the bounded provision of Pillar 3a and in the free provision of Pillar 3b. If no detail in the run-up to the life insurance comparison was made, it may be that you wish to cancel the life insurance later. In principle, a premature termination of the life insurance is possible but often associated with losses. How much is lost is dependent on the terms of the policy as a form of investment and by contractual modalities. MoneyPark explains what to do when terminating a life insurance policy and how to do it best.
Life insurance as an old-age provision
Within the framework of Pillar 3a, you can enjoy a pension policy with the same tax privileges as a bank would. The same conditions apply to the premature purchase. Since the policy is provided as a retirement pension, the savings can be made freely only in exceptional cases, for example, when acquiring residential property or amortizing a mortgage. In contrast to the banking solution, parts of the capital in the insurance policy are covered by death and risk protection insurance, which is why it is often referred to as a mixed life insurance. In the case of the insurance completion, the return is lower, but the family is additionally hedged in the event of death or disability.
Within the framework of Pillar 3b, the same conditions apply to the insurance policy as in Pillar 3a, however, the tax privileges are eliminated and you are somewhat more flexible in the handling of the capital amount than in the case of tied pension provision. The termination of the life insurance is, however, also to be thoroughly considered.
Prematurely termination of life insurance
In many cases, the termination of life insurance is a bad idea in the first few years, as the policyholder hardly gets anything back. As a rule, the premiums of the first years are mainly attributable to the final commission of the insurance company. Only then is the pension fund impacted by the payments. To terminate the life insurance early can be an expensive affair. This commission is also calculated on one-off deposits. In this case, a part of the amount is simply subtracted. A resolution worthwhile if the triggered capital is invested long-term in a system in which the after-tax return on investment yields more than the life insurance. If you carefully examine the options on the market, it can pay off.
If you want to terminate a life insurance, you should also consider that it can sometimes be difficult to acquire a new insurance policy in the future. The older you get, the more expensive the insurance, and for those who are already health-impaired, an insurance company can often times reject your request for insurance. Whether it is worthwhile to dissolve or keep your life insurance is also something to carefully consider for this very reason.
MoneyPark can advise you if you wish to cancel your life insurance policy
If you are not sure whether to cancel your life insurance policy or not, the MoneyPark team will be happy to advise you. In an independent consultation, we examine with you, your individual situation and whether the termination of the life insurance is reasonable and whether there are better alternatives for your old-age provision. Simply arrange an appointment with a MoneyPark consultant in your area today to get started.
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