Pension or lump sum – what to do?

Lump sum vs. pension

Life insurance is paid out: what should you do?

When life insurance is paid out, the question sometimes arises as to what is the best thing to do with the money. The type of payout also plays a role.

Life insurance payouts can yield a significant sum. In 2023 alone, the industry paid out almost 97 billion euros to its customers. In order to make the best use of your money, you should proceed carefully. This starts with the way you have your life insurance paid out. We show what options you have and what makes sense for whom.

With life insurance, there are usually two ways in which you can have the benefit paid out:

• in one fell swoop as a one-off payment
• as a monthly pension.

This is called capital voting rights. Which payout option is better for you depends, of course, on your financial situation and your wishes. If you can really use a large sum at the moment, a one-off payment is better suited to you than a monthly pension. You can use the paid-out life insurance for the following, for example:

If you have accumulated large amounts of debt that may even need to be paid off, a one-off payment comes in handy. This is even more true if the loans have high interest rates. Then, by paying it off quickly, you often save more interest than you could earn with an investment. Plus, it just feels good to finally be debt-free.

If there are no loans to pay off or if there is even money left over after repayment, you could also use it to top up your emergency reserve or possibly build it up in the first place. Experts recommend having an emergency fund in the amount of three to six months’ salary. This gives you financial security for unexpected expenses or loss of income. Read more about this here.

If you own a house or apartment, it may make sense to invest the money from your life insurance in value-increasing renovations or energy-saving renovations. This will save you costs in the long term and increase the value of your property. There are now various specialized providers who can help you find the right measures (more on this here).

It may not be you who need a large sum of money, but someone in your family whom you would like to support. The sum from the life insurance could increase your child’s equity to buy a house or you could invest it in your granddaughter’s education. Maybe you also have the desire to further your education yourself.

It’s perfectly legitimate to use the one-time payout for something you’ve been waiting for for a long time. This could be a longer trip, your own motorhome or expensive equipment for a hobby. If your finances are otherwise in good shape, there’s absolutely nothing wrong with treating yourself every now and then.

You don’t necessarily have to opt for monthly pension payments if you want to secure your standard of living in old age. You can also use the money from the insurance to invest it in the capital market and pay it out yourself later, including earnings. Monthly pension you built yourself, so to speak.

This is possible, for example, with an ETF savings plan. ETFs are exchange-traded index funds that track an index such as the Dax. So they always develop almost exactly like the index they reflect. For your retirement planning, however, you should rely on a significantly broader index than the Dax. The MSCI World is recommended. It includes more than 1,500 stocks from companies in the industrialized world, so you spread the risk across many different shoulders. Read here why ETFs still make sense even in old age.