Life insurance is common in Germany, but other forms of savings offer higher returns. This is why life insurance is better than its reputation.
Last year there were around 81 million life insurance contracts in Germany. Statistically speaking, almost every German had a life insurance policy. The selection of alternative savings plans is huge and the returns on the capital markets are more lucrative. Why do Germans still hold on to their life insurance policies? Are they perhaps better than their reputation?
In an interview with t-online, Kai Fürderer from the Society for Quality Testing explains why life insurance also has its good sides – and why you shouldn’t do without an ETF savings plan.
t-online: Insurers often sell unit-linked life insurance policies with promises of high returns. Do insurers offer good offers?
Kai Fürderer: I don’t think anyone can give a serious, general answer to that. If it’s purely about the possible return on the capital market, an ETF or fund savings plan is always the better alternative, as it is a “direct investment” in exchange-traded securities – without the investment vehicle of an insurance company.
On the other hand, it is precisely this insurance cover that offers advantages that you should be aware of so that you do not look at the pure gross return. This applies both to death protection, for example with life insurance, and to the tax advantages if you have the assets paid out as a monthly pension from life or pension insurance when you are old or retire.
Kai Fürderer Together with his wife Iris, he runs the Gesellschaft für Qualitätsprüfung mbH based in Herrsching am Ammersee. The Society for Quality Testing is a company that deals exclusively with in-depth quality testing based on recognized quality standards and norms.
How can you recognize good life insurance?
Not all pension and life insurance policies are the same. The various insurance providers often have significant differences.
Here’s a quick example: If your focus is on receiving a lifelong pension when you retire, provider 1 could provide the right pension insurance. If, on the other hand, you prioritize the highest possible capital payout at the end of the term and intend to have the capital paid out in one fell swoop, provider 2 could be the more suitable candidate.
In any case, the costs of unit-linked pension insurance are a decisive factor in determining whether the pension insurance is worth it at the end of the contract term.
What ongoing costs should you expect if you take out unit-linked life insurance?
The costs of a fund-linked pension insurance are as follows: acquisition costs, costs for the monthly contributions, contract costs, ongoing costs for the entire capital, fund costs. It is important to find out about these costs so that you can compare the products better. Comprehensive and well-founded advice is definitely available here.
According to a study by Bafin, the average effective costs for an average classic policy are 1.28 percent. For fund policies it is an average of 1.90 percent. But for every fourth insurer they average around 3.3 percent. Bafin found that there are even many providers who charge gigantic effective costs of over four percent for all terms.
With such expense ratios, there is hardly anything left even from good stock funds, which generate an average return of six to seven percent.
One should not underestimate the fact that inflexibility brings with it a certain “savings discipline”.
Kai Fürderer
In other words: unit-linked life insurance is hardly attractive compared to an ETF savings plan?
Unfortunately, that is often true. And with a few exceptions, there are no guarantees for these products, but they often have very high costs, which you should definitely find out about before taking out the deal. In addition, insurance solutions are usually very inflexible. In the event of early termination, losses can even be expected.
In addition, the selection of possible funds – depending on the provider – is very limited and limited to certain funds. That’s why you could almost believe that a fund or ETF savings plan is always the better alternative.
This is actually obvious when you look at the costs of an ETF savings plan and compare the returns with life insurance.
I believe that for many savers a fixed savings plan, where you cannot easily access the capital, can also offer advantages if you really save and let it run until you retire.
That sounds very banal. However, one should not underestimate the fact that inflexibility brings with it a certain “savings discipline”. It is important that you continue to pay the monthly savings contribution so that you do not run the risk of terminating the contract prematurely.
