In this post, you’ll learn everything you need to know if you’re considering a life insurance policy.
In fact, this article contains all the best tips and nuggets from Feather’s insurance specialists.
So, if you’re asking yourself:
- What even is life insurance?
- Do I need a life insurance policy?
- What is term life insurance policy?
- How does it compare to whole life?
- How much will it cost?
Then this guide is for you.
What is life insurance?
A life insurance contract is a way to protect your family’s financial future if you die or pass away unexpectedly. It acts as a financial safety net, providing a payout to one or more beneficiaries (usually your family) to help cover expenses and maintain financial stability during this difficult time.
This payout can be used for several purposes, such as:
- Paying off debts: Including credit cards, personal loans, or any other outstanding financial obligations.
- Covering mortgage payments: Ensuring your family can keep their home and not risk foreclosure.
- Funding funeral expenses: Which can be quite expensive and otherwise add financial stress.
- Supporting daily living expenses: To help your family maintain their current standard of living without immediate financial pressure.
While the idea of life insurance can be uncomfortable since it involves thinking about dying unexpectedly, having a policy in place provides peace of mind. It’s essential to ensure your loved ones have financial security and won’t face unnecessary burdens during an already challenging time.
In Germany, it’s also called the following:
- Risk life insurance
- Risikolebensversicherung (RLV)
- Term life insurance
How do life insurance policies work in Germany?
As we just discussed, life insurance provides financial protection for your loved ones in case of the death of the insured person.
When purchasing a policy, you select a “death benefit” — the fixed sum your beneficiaries receive from the insurance company if you pass away. To keep the policy active, you pay monthly premiums, which are influenced by factors such as age, medical history, and insured sum amount.
What types of life insurance are available in Germany?
There are two main types of life insurance in Germany: term life insurance and whole life insurance.
Each has specific features suited to different needs.
Term life insurance
These policies run for a set period, like 5, 10, or 25 years. They only pay out if the insured person dies within that time.
These policies are ideal for periods of high financial responsibility.
For example, they work well when raising children or paying off a mortgage. If the worst-case scenario happens to the insured person during the policy term, the beneficiaries receive the payout (which ensures they are financially protected).
If you think term life insurance is right for you, you have the choice of 3 options you can choose from:
- Level term policies:
- These pay a lump sum if the insured person dies during the term. It’s the classic life insurance policy.
- The lump sum amount stays the same throughout the policy.
- It’s a simple and affordable option that suits most people.
- Decreasing term policies:
- The coverage amount decreases over time, usually matching a repayment mortgage.
- The payout reduces as the outstanding loan gets smaller, but the policy is more affordable.
- Increasing term policies:
- The coverage increases over time to keep up with inflation.
- This type of policy helps protect against rising living costs but is generally more expensive.
Whole life insurance policies
Whole of life insurance covers the insured person for their entire life, as long as they keep paying the premiums. It guarantees a payout whenever the insured dies.
This type of policy is often used for inheritance tax planning or to cover funeral expenses.
While it sounds like a much better deal, it’s also more expensive than term life policies because it lasts for the person’s whole life. This means there’s a risk of paying more in premiums over time than the eventual payout if the insured lives longer than expected.
On the upside, there are possibilities for early payouts, if the policy includes a “cash value component”. This allows the insured to access some of the accumulated funds during their lifetime, either through loans or withdrawals, depending on the policy’s terms.
Who needs life insurance in Germany?
Not everyone needs life insurance, but for some, it’s a smart move.
Here’s a breakdown of who should consider getting a life insurance policy and why.
- Parents with young children: Life insurance can cover your children’s daily expenses and educational costs. It can even build long-term savings as they age.
- Homeowners: If you own a property, life insurance’s financial compensation can help cover mortgage payments or other debts to protect your dependants.
- Caregivers: If you provide care for a loved one, or they’re financially dependent on you, life insurance can ensure they continue receiving the support they need without interruption.
- Care-receivers: Seniors can leave behind a final “thank you” for their caregivers’ continued support.
- Wealthy Families: For those with large estates, life insurance is a helpful tool for covering estate taxes. This way, more of the estate’s value can be passed on to heirs.
- Businesses with key employees: If a company depends on certain key individuals, “key person insurance” helps to keep operations running smoothly if an essential employee or business partner passes away.
- Married Pensioners: Life insurance can supplement pension benefits, offering a safety net to replace lost income for a surviving spouse.
Who might not need life insurance?
While a life insurance policy can be beneficial for many, there are certain situations where term life insurance policies might not be necessary:
- Single individuals without dependents: If no one relies on you financially, life insurance is usually not necessary.
- Individuals with high-earning partners: If your partner can comfortably support the family independently and is prepared to do so in the event of your passing, life insurance is less essential.
How much is life insurance in Germany?
Life insurance in Germany is quite affordable meaning you won’t need to spend much money for peace of mind. Some insurance companies offer policies for just 3 to 5 euros per month per insured person.
However, the exact cost depends on various factors. Here’s what influences the price of life insurance and some tips on keeping premiums low:
What influences the cost of term life insurance?
Life insurance providers calculate premiums based on factors such as your age, if you’re a non-smoker, coverage amount and more:
- Age: Younger people generally pay lower premiums. The earlier you apply, the cheaper it is.
- Health status: It plays a big role. If you have pre-existing conditions, your premiums will be higher.
- Lifestyle: Habits like smoking or risky hobbies can increase costs. Insurers see these as potential risks.
- Medical history: If certain issues run in your family, insurers might see this as a higher risk, and charge you more money.
- Policy length: The longer you want your policy to last, the more it will cost.
- Occupation: If you work in a high-risk job, such as construction or firefighting, your premiums will be higher.
Tips to lower your premiums
Lowering your life insurance premiums can be achieved both before applying for a term life insurance plan and after your policy is approved.
Here’s how you can make the most of each stage:
- Before Applying: Keep a healthy lifestyle. Quitting smoking, managing your health and consistent health checks with your doctor can lower premiums. Applying for term life insurance when you’re younger can also help you lock in lower rates, as you’ll likely have fewer pre-existing conditions.
- After Approval: If you improve your health or make lifestyle changes (like quitting smoking) after getting insurance, you can ask for a reassessment to lower your premiums. Note: the contract terms won’t change if your health worsens after the initial assessment.
How much death benefit do you need?
Life insurers in the German market alone pay out over 160 million euros in term insurance benefits to family members of policyholders.
But you probably don’t need that much death benefit.
In fact, your death benefit should simply align with your financial responsibilities.
Here are other factors to consider when selecting your life insurance:
- Debts: Ensure your sum insured is enough to clear any outstanding loans or debts.
- Mortgage/Rent: Calculate how much your family would need to cover housing costs.
- Dependents: The more dependents you have, the more coverage you may need to cover household expenses.
- Income Replacement: Consider how much your family would need to maintain their current lifestyle without your income.
A common recommendation is to provide enough life insurance coverage to support your loved ones for 3 to 5 years, giving them time to establish other income sources. Covering expenses for a more extended period is possible but will result in higher premiums.
Estimating your ideal death benefit:
You can use this death benefit formula to help determine the right sum insured:
Funeral Costs + Total Debts + (Annual Mortgage or Rent × Years to Cover) + (Your Annual Net Income × Years to Cover)
Is life insurance worth it?
Life insurance can be worth it, but as with most things in insurance, it depends on your situation and desired financial protection. Here’s how to break it down:
What are the benefits of life insurance?
Many people buy term life insurance for these reasons:
- Covering funeral costs: These can add up quickly. For example, a cremation funeral costs about €3000 to €4000.
- Replacing lost income: If you are the main wage earner, your death could leave your family in a tough spot financially.
- Leaving an inheritance: For many, it can be a way to pass down a legacy. Even if you don’t have significant assets, a life insurance policy can provide something for your loved ones.
- Tax advantages: A big plus is that life insurance benefits are typically tax-free, which means your family gets the full insured amount.
Making the decision
Here’s a step-by-step way to figure out if life insurance is for you:
- Assess your financial needs: Calculate how much money would be needed to cover funeral costs, pay off debts, and support your dependents using the death benefit formula above.
- Research policies: There are different types of life insurance, like term life (coverage for a set number of years) and whole life (lifelong coverage). Look into which fits your situation.
- Get quotes: Compare prices from multiple life insurance provider to find a plan that suits your needs and budget.
- Seek dvice: If you’re unsure about coverage types, inheritance tax implications, or the life insurance contract’s details, talking to a financial advisor can provide clarity.
What term life insurance companies should you consider?
If you think term life insurance is for you, then here is a list of leading life insurance companies to consider in your search to make an informed decision:
- Feather: 100% in English, digital policy management, and affordable rates.
- Alllianz: over 157,000 employees, the largest insurance company in the word.
- Axa: With over 94 million clients, Axa is one of the world’s largest insurers.
- Generali Leben AG: Founded in 1831, and generating over 80 million euros in gross written premiums, it’s one of Germany’s most popular insurer.
Of course, we recommend that you investigate other insurance providers to make sure you find the right fit based on your personal factors.
Life insurance in Germany starting at €1.98 per month
Conclusion
And this concludes our guide to life insurance in Germany…
We hope we have answered your questions and helped you determine whether you should start looking for a life insurance company.
Do you still have any questions?
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