Life insurance is a type of insurance in Switzerland that functions like a safety net. In its simplest form, life insurance will pay out a fixed sum in the event of your death or if you become unable to work. However, many policies also combine this risk insurance with long-term savings, making life insurance an essential part of the third pillar of the Swiss pension system.
Best life insurance in Switzerland
The following companies all offer expat-friendly life insurance policies in Switzerland:
- Zurich Insurance
- ELVIA
What is life insurance?
In Switzerland, rather than just paying out in the event of your death, life insurance is designed to protect you in a range of different circumstances:
- It can provide financial protection for yourself or your family in the case of a death, long-term illness, or accident.
- It can also function as a retirement provision, helping you to build up savings long-term.
Life insurance is therefore particularly popular in Switzerland because it allows you to combine security insurance with long-term savings, all while benefiting from tax deductions.
Types of Swiss life insurance
Broadly speaking, there are two main types of life insurance in Switzerland, which are often combined into a single policy:
- Term life insurance: Which pays out only in the event of your death, or if you become permanently disabled and unable to work.
- Endowment life insurance: Which helps you save money for retirement, to receive a payout when the contract expires.
Term life insurance
Sometimes also known as risk life insurance, term life insurance is what most people would consider “classic” life insurance: you pay into the policy each month, and should a so-called “claim event” occur - for instance, if you die or become unable to work due to illness or an accident - a predetermined lump sum will be paid out.
Endowment life insurance
The pension benefits paid out by the Swiss OASI and BVG systems (pillars one and two of the Swiss pension system) aren’t always enough to maintain a person’s standard of living in retirement. For this reason, many people choose to contribute to a private pension (pillar three).
Endowment life insurance, sometimes also called savings life insurance or combined life insurance, lets you combine a risk life insurance policy with a long-term savings strategy. With endowment life insurance, you set aside money for retirement, while protecting your dependents from risk in the meantime.
Your contributions are either saved to earn interest, or invested on the stock market to generate returns, or (most commonly) a mixture of the two. Depending on the management of your investment, this kind of insurance can generate a higher return than simply saving the money traditionally, for instance in a bank account.
With endowment life insurance, the policy is either paid out when a claim event occurs, or when the policy expires, if the insured person is still alive.
Pillar 3a vs pillar 3b life insurance
In Switzerland, life insurance policies are normally based on one of two categories of retirement savings:
- Restricted pension plan (pillar 3a)
- Unrestricted pension plan (pillar 3b)
It’s important to know which pillar your chosen life insurance policy falls under, as this can have ramifications for your tax bill, your choice of beneficiary, and the circumstances under which you can opt for a payout of your policy.
Below are some key features of the two types, but it’s important to discuss the exact details of your plan with your chosen insurance provider, as many offer both 3a and 3b versions of the same policy. Which one is right for you will depend on your personal circumstances and reasons for taking out life insurance.
Pillar 3a
Pillar 3a is also known as restricted pension provision. This is because, in many ways, 3a policies are more restrictive, but they do offer significant tax-saving opportunities.
The Swiss government wants to financially support people making private pension provisions, and so contributions to 3a plans are fully tax-deductible, allowing you to save money on your annual tax return. As of 2024, contributions are capped at 7.056 Swiss francs per year for employed people, and 20 percent of net income for self-employed people, up to a maximum of 35.280 Swiss francs per year.
The flip side to these tax advantages is that there is a greater number of restrictions on 3a plans:
- You cannot freely choose a beneficiary of your plan in the event of your death; instead, the payout usually goes to your spouse or partner, or direct descendents, following Swiss inheritance laws.
- You can only withdraw the balance a maximum of five years before you reach regular retirement age (although there are exceptions if you want to use it to buy a house or become self-employed, or you are leaving Switzerland permanently).
- The insurance term of 3a policies cannot exceed retirement age, and so this plan will not cover you in retirement.
- You pay no income or wealth tax on the balance during the policy term, but you pay a one-time capital benefit tax when you withdraw the money.
Pillar 3b
Pillar 3b plans are not supported by the state - as such, they benefit from fewer tax advantages but have the plus of being more flexible. For this reason, they are generally known as free or unrestricted pension plans:
- There is no maximum amount that you can pay into a 3b plan.
- You can deduct your 3b contributions from your taxable income, but for most people the tax benefits are minimal. This is because 3b contributions are lumped together with other insurance premiums like those for health insurance and disability insurance in one section on the tax form, which carries a maximum deduction threshold.
- You can freely choose who you select as the beneficiaries of your plan.
- You can decide when your plan matures, rather than waiting to reach retirement age to withdraw your money (note that you may incur a penalty if you terminate your policy early).
- You can opt for a longer insurance term that covers you beyond retirement age.
- During the policy term, the value of your 3b policy must be declared each year as an asset on your tax return, and therefore is taxable. However, you normally do not pay any tax during the payout phase.
Who should consider life insurance in Switzerland?
Having life insurance is not compulsory in Switzerland, but you may wish to take out a policy for peace of mind and to maintain your current standard of living once you retire. Life insurance is especially worth considering if:
- You have a mortgage together with a partner
- You have children or other people who are financially dependent on you
- You don’t have a lot of savings
- You run your own business and would like to ensure its survival, even in the event of your death
- You are unlikely to get enough through the OASI and BVG pension schemes to maintain your current standard of living
- You want to ensure you have enough money, should you become unable to work due to an accident or illness
- You would like to build up additional retirement reserves, while making use of tax advantages
How to take out a life insurance policy in Switzerland
Taking out a life insurance policy in Switzerland is usually as simple as approaching an insurer and asking for advice or a quote. You can also use a comparison site to compare offers. Since life insurance is so flexible in Switzerland, it’s worth having a consultation with an expert to discuss what kind of product would best meet your needs.
To compare offers, you’ll need to decide what value of payout you would like to receive in the event of your death, an illness or an accident, or at the end of the contract term. To calculate this, you’ll need to consider a few factors, including:
- The outstanding balance on your mortgage
- The proportion of household income made up by your salary (so what the income shortfall would be, in the event of your death)
- How many children you have, and how much you would need to provide for them until they become independent
- How large a payout you can expect from your OASI and BVG pensions (if applicable), and what your income shortfall would be after retiring
You’ll also need to specify the policy term. If you’re not planning on remaining in Switzerland for a long time, you could opt for a short life insurance contract term of just a few years. Otherwise, you should consider factors like:
- The length of time left on your mortgage
- The age of your children
If you are opting for a combined life insurance policy, you’ll also want to think about the kind of saving strategy you want to adopt: do you want to simply opt for traditional savings, or attempt to increase the value of your contributions through investments? If you are going to invest, how much risk are you willing to take?
You will also need to decide if you want to add any additional options to your policy. For instance, some companies allow you to opt for a premium waiver. This essentially means that the insurance company will grant you an exemption from the obligation to pay premiums, keeping your policy active if you lose your earning capacity due to an illness or accident.
Cost of life insurance
Life insurance is usually paid via an annual premium, although some policies are purchased through a one-time payment. As with any type of insurance, the cost of life insurance depends on the scope of your policy: a higher lump sum payout will result in higher monthly premiums.
You can also count on paying higher premiums if you are considered “risky” to insure. Factors such as your height, weight, occupation and health history play a role in determining this.
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