Things to know about life insurance

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Things to know about life insurance

Life insurance fulfills two different functions. It serves to protect surviving dependents if the insured dies during the term of the insurance contract. If the policyholder has taken out so-called dowry insurance for his or her child or children, it will continue to run free of charge if the policyholder should die. In its second function, life insurance serves to protect the insured after the end of the contract. The agreed insurance contract is paid out together with the yield. Depending on the contract, the payment is made as a one-off payment or as a lifelong pension. Many policyholders adjust the contract term so that the payment is made when the pension begins. The payment serves to secure the standard of living in retirement age. There are a variety of life insurance options on the market. The comparison of the individual policies is very important in order to find the right decision for the individual needs.

Things to know about life insurance

Various insurance policies for every life situation

The insurance companies offer different policies, which differ in their services, but also in their premium. The customer has the choice between taking out endowment life insurance and term life insurance. Both variants should be compared with each other in order to find the right policy for the individual life situation.

term life insurance

As the name suggests, this type of life insurance covers personal risk. These insurance policies have several advantages:

* Favorable premiums
* Freely selectable term
* Protection for the surviving dependents in the event of the premature death of the policyholder

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The disadvantage of term life insurance is that no capital is saved. Only the risk is insured. If the insured dies during the term of the contract, the heirs or the person entitled under the contract will be paid the agreed sum insured. If the insured person survives the end of the contract, there will be no payment. The invested capital expires. The premiums are significantly cheaper than with a life insurance policy.

Some insurers offer the conversion of a term life insurance into a capital life insurance. This possibility usually exists in the first years of insurance. If the insured chooses this option, the capital paid up so far is transferred to the life insurance.

capital life insurance

The insured pays an annual premium for a pre-agreed term, which can be agreed over several decades. This can also be paid monthly or quarterly. At the end of the term, the insured can use the capital saved. These policies have several advantages:

* Retirement
protection * Protection for the surviving dependents *
Very good returns if you take out a contract at a young age

The disadvantage is the close connection to the insurance company. If the contract is terminated prematurely, this is only possible with high losses, especially in the first few years.

Important contract content in life insurance

Life insurance should have important contract components. These include:

* One-time payment in the event of death
* Right to choose a lump sum
* Right to suspend the premium in difficult financial situations
* Right to increase the agreed sum insured

In contrast to the savings plan, the policies offer important protection in the event of the death of the insured. The surviving dependents are paid the sum insured. The one-off payment in the event of death is an additional benefit that provides a bridge for the first difficult period after the death of the bereaved.

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Tax advantages of taking out life insurance

Tax benefits are no longer granted for new life insurance policies. All insurance policies taken out after January 1, 2005 are taxable. The tax is due on the capital gains. The premium paid is not taxed.

Contracts concluded before this date were exempt from capital gains tax.

Capital option – what is it?

The so-called lump-sum option can be agreed in the contract for life insurance and annuity insurance. The insured person has the choice between payment of the insurance contract in one amount or a lifelong pension. The capital option must be agreed in the insurance contract and has tax implications. If the life insurance is paid out as an annuity, it is subject to taxation. The profit has to be taxed, but not the amount that has been paid in over the years.

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