Pension and life insurance companies offer their customers guaranteed benefits in old age, for example, in the form of a monthly pension or a one-off capital payment. However, both products are more than just pension products.
Life insurance combines the benefits of a private pension scheme with the financial protection of relatives from the beginning of the contract. In addition, customers can protect themselves from risks such as accident or incapacity for work. In contrast to private pension insurance, life insurance provides financial protection for survivors from the outset. If the insured person dies before the end of the contract, the survivors receive the guaranteed insured sum and the surplus shares accumulated up to that point.
What does life insurance do?
With capital life insurance, the customer can provide for retirement and, at the same time, protect his relatives. The customer receives a one-time sum of insurance consisting of his paid contributions, the guaranteed interest rate, and the surpluses generated by the company. The guaranteed interest rate is currently 0.9% and is valid for the entire term of the insurance contract.
If the insured person is still living past the agreed date of the end of the contract, they themself receive the insurance benefit.
Capital life insurance combines retirement provision with survivors’ protection.
Guaranteed benefits offer pension provision with a high degree of security. Insurance companies offer their clients a guaranteed retirement capital benefit and, in simple terms, a guaranteed return on the capital currently built up of 0.9%. This applies to the entire term of the insurance contract. In addition, there is a surplus share. Additional components such as disability or accident supplementary insurance can be agreed in the same contract.
What to look out for when taking out life insurance
Life or pension insurance is a decision for many years, so you should be fully informed about your pension needs, as well as how much you can afford in the long term. Private pension and life insurance are offered in many variants. Anyone can choose the product that best suits their personal needs. Even current contracts can often be adapted to a suit changes in private or professional circumstances.
The insurance application determines the tariff and the scope of the insurance cover. The applicant determines the amount of the insured amount or, in the case of a pension, the monthly pension. The applicant also decides whether the main insurance cover includes supplementary insurance, such as disability insurance. If you want to automatically increase the insurance contribution and benefits during the term, you usually have to note this in your application as well.
The amount of insurance contribution depends on several factors. These include:
- the amount of the desired insured sum or the monthly pension
- the state of health
- the duration of the contract
- distribution and administrative costs
- the age
- the salary
- the alcohol consumption and the smoking habit
- the weight
- medical issues
Depending on the client’s state of health, the insurance can be cheaper or more expensive. But supplementary insurance also costs money and decides on the amount of contributions. Here, the age and health status of the insured person, risk-relevant hobbies and the fixed insurance sum are decisive. Insurance contributions may be paid monthly, quarterly, semi-annually or annually. If no annual contributions are paid, in some cases instalment surcharges may apply. The insurance sums usually don’t increase over time.
To give you a brief overview of the costs, please find the average costs depending on various factors below:
Automatic increase in insurance premiums
The automatic increase in contributions (dynamics) ensures that the insurance sum “grows along” over time. Contribution and sum of insurance increase at regular intervals – either by a certain percentage agreed by the contract or by the value by which the maximum contributions of the statutory pension insurance increase.
Comparing the UK’s best life insurances
When deciding which life insurance to take, you will notice there is a number of factors you need to consider. From the entry age to the term length and the costs, there are numerous factors that can help you make a decision. In order to choose a life insurance company, it is important to think about what is most important to you, for how long you want to be paying contributions, amongst many other factors. The following provides an overview showing a comparison between ten different insurance companies:
Minimum and maximum entry age
The age of entry in insurance is the age of the insured person (who is often, but not always the policyholder) at the beginning of the insurance, which the insurer considers when calculating the insurance premium at the beginning of the desired insurance. It does not have to correspond to the actual age. The age of insurance is particularly important for the amount of insurance contributions when biometric are included, i.e. risks that change significantly with the age of the insured person. This applies in particular to life insurance, private pension insurance, private occupational and disability insurance, private health and long-term care insurance. However, the age of entry also checks whether insurability is still present. In addition to the above-mentioned insurances, this also applies to accident insurance. Comparing the premiums of insurance offers with biometric risks is only useful when considering the age of entry, since the insurers use different methods and can therefore also come to different calculations depending on the start date and date of birth, even with the same rates and conditions.
There are three ways of analyzing the entry age:
Actual Age of Entry
- In this procedure, the actual age of the insured person is taken into account on a day-to-day basis. If the insurance starts one day after the birthday, the insured person is a whole year older for the calculation of the insurance contributions.
Calendar-year determination (or calendar year method)
- This procedure is used by the majority of private health insurers and some life insurers. In order to determine the age of entry, the year of birth is subtracted from the current calendar year. With this method, the age of entry increases by one year exactly at the turn of the year, i.e. a plan starting with insurance on 1 January often leads to higher premiums than one starting on 1 December of the previous year with the same end date.
- This method, which is particularly popular with life and disability insurers, is related to the date of birth and the desired start of insurance: the insured person is older by a calculative year 6 months before his birthday.
Whether life insurance makes sense in older age depends on the purpose. Securing a loan for survivors certainly makes sense. In the case of capital-forming life insurance, there may either be a speculative background or it is only now that we have the opportunity to provide for the family. In the event of an experience, one would have to start with a high special payment if one wants to make a noticeable profit in interest and returns. The minimum entry age of insurances is usually somewhere between 16 and 18. The maximum age ends at 65 for the Guardian insurance company. Royal London, Legal & General, Vitality, Liverpool Victoria and Scottish Widows offer insurances until various ages into the 70’s. Aegon, AIG, Aviva and Zurich allow you to get a life insurance while you are already in your 80’s.
|Company||Minimum and maximum entry age|
|Aegon||18 / 89|
|AIG||18 / 88|
|Aviva||18 / 89|
|Guardian||18 / 65|
|Legal & General||18 / 77|
|Liverpool Victoria||17 / 79|
|Royal London||18 / 70|
|Scottish Widows||18 / 79|
|Vitality||16 / 74|
|Zurich||16 / 83|
Maximum covers of different insurance companies
The payment of a life insurance policy depends to a large extent on the type of insurance that a policyholder has. Therefore, before concluding a contract, think carefully about which model of life insurance is the most suitable for you. If there is an early termination of life insurance, this is crucial, among other things, for the amount of the payment.
Capital life insurance is not part of survivors’ protection but is intended to increase the pension of the policyholder. In most capital life insurance policies, the insured person has the option of choosing between a one-off capital payment and a pension payment. The payment consists of the saved insurance contributions and the guaranteed interest. The sum of the interest-bearing contributions corresponds to the insured sum, which is paid out to the insured person in the event of experience. In addition, there are profit and surplus participations. You increase the pay-out but are not guaranteed. In recent years, profit and surplus participation has fallen, which is why capital life insurance is currently regarded as a moderately profitable form of retirement provision.
Insurance customers pay into a capital policy for a long time and do not know what amount is available for the expiry of the policy until the end of the period. This is because the ongoing communications from the insurance companies are hidden or difficult to read. Many customers are disappointed with the process because they expected a higher amount of money. To prevent this from happening, you should clarify the status of your policy at an early stage. To do this, you need to know that the expiration performance consists of multiple components and only the guaranteed performance is secure.
You should think carefully about whether you want to have the saved capital paid out as a one-off payment or as a monthly pension. A one-off payment is actually only worthwhile if you don’t live long, but no one can foresee that. If you want to make a larger investment, such as financing a property, the one-time pay-out is an advantage. The monthly pension payment is made for a lifetime and is guaranteed, so it is more worthwhile than the one-off payment if you are still living for some time. Tax aspects must be taken into account when disbursing capital life insurance. Taxation shall be deducted on the year of conclusion of the contract, and the term and age of the insured person at the time of payment. As a rule, the payment will always be taxed, but it will vary depending on the final year, the duration and the age of the insured person.
In the following, you will find an overview of the different companies and their maximum covers:
|Legal & General||Unlimited|
|Scottish Widows||£25 million|
The length of terms
If insured persons have opted for capital life insurance and death does not occur, a contractually agreed sum of capital will be paid at the end of the insurance term. This is the sum insured plus the surplus shares in an interest-bearing capital life insurance, whereas in the case of unit-linked insurance, the existing fund assets are paid out to the insured. The duration up to the payment of life insurance can be determined individually by the insured. As a rule, the insurance procedure is agreed at the age of 60 or 65, as many insurance policies are taken out as retirement savings. In addition, there are tax advantages when it is paid out, provided that a minimum term of twelve years of insurance has been observed and that the insured person has already reached the age of 60 upon payment.
In principle, however, the insurance companies release the duration until payment, which is why shorter life insurance policies can also be taken out. For most insurance companies, insured persons who do not yet want to commit themselves to a pay-out date at the time of conclusion can choose a flexible pay-out. The call-up phase of the contract can be agreed for up to five years, in order to allow, for example, flexible payments between the ages of 60 and 65. If the capital is needed early on, for example, because work is no longer possible due to illness, the payment can take place on the 60th birthday, but if the money is not yet needed, the capital can remain invested with the insurance company and achieve further returns. If the payment is then requested, a corresponding letter must be written to the insurance company, which includes the duration until the payment. It should be noted that some insurance companies only use special pay-out dates, such as at the end of the quarter.
Tips for your life insurance in an overview
The more economical an insurance policy is, the higher returns can be. But be careful, there is no obligation to payout. Providers themselves decide how the pay-out is used. This can also be invested for better interest rates, price stability or reserves. According to our experts, investors can reach up to seven per cent through smart investments (pension funds, mixed funds). But here the insured bears the greater financial risk.
Remember these tips:
- Choose the right insurance sum
- Determine demand
- In the case of pre-existing medical conditions, choose death benefit insurance
- Observe the financial strength of life insurers
- Search for the test winners
- Compare tariffs and providers
- Financially protect your family and partners
- Contribution exemption is better than selling
A comparison of life insurance is definitely necessary and important. In the meantime, there are a lot of providers who have reduced the services by means of special clauses. When choosing the right policy, customers should consider how they want to use the insurance
Tips for families – don’t forget the protection of survivors
Survivors’ protection is an elementary part of life insurance. However, it must be considered that in the case of capital life insurance, contributions are significantly higher than in the case of risk life insurance. It has to be calculated which policy is best suited. The prospective buyer needs to know that no money can be saved with a risk life insurance. Therefore, it costs only a fraction. Termination should be avoided in the case of life insurance.
Don’t just cancel the contract
Those who cancel their life insurance risk dissolving their insurance cover (survivor’s protection, interest). This is particularly true of old contracts because they have an interest rate of 3.5%-4%. New contracts can no longer provide such high-interest rates. For this reason, it is better if contracts are continued.
If you take a bit of time to be informed and compare the various providers, you should find a good life insurance. It may be a lot of information, but the more you compare the providers, the better the chances that you will find an insurance that meets your wishes and expectations.