What is life insurance for?
Life insurance can help in many situations: in the event of an accident, surgery, long-term illness or death, it can help with your finances, but it can also be an important tool for self-care, for example in the form of early retirement savings.
What are the main types of life insurance?
In practice, life insurance is divided into two categories, depending on whether or not it has a savings element. Insurance without a savings element is called risk insurance. In this case, the insurer undertakes to pay a predetermined amount to a contractually defined beneficiary during the term of the insurance, in the event of an insured event (for example, the death of the insured). If the policyholder is alive at maturity, the insurance is terminated without payment. In the case of insurance with a savings element, part of the premium paid is invested by the insurer and paid out at the end of the insurance period, on the occurrence of an insured event or on termination of the insurance before maturity. These include unit-linked insurance, mixed life insurance and pension insurance.
Term life insurance
Term life insurance pays out a regular or one-off premium in exchange for a payout if the insured person dies. Term life insurance can be supplemented by other elements, such as supplementary insurance for disability or critical illness. These are called an insured event. This is the simplest form of life insurance: it provides financial assistance to your dependants if one of the events covered by the contract occurs. Term life insurance is not suitable for savings or investment purposes.
It is usually taken out for a period of 5-25 years. Once the insurance is taken out, there is a waiting period of a few months: this means that if an insured event occurs within this period, the insurer will not pay. Insurers usually also set an entry age and an upper age limit, which limits the maximum age you can be when you take out the insurance and the maximum age you can stay insured until. Premiums are most often paid monthly, annually or in one lump sum at the beginning of the term. If there is no insured event during the term of the policy, no payment is made – no money is refunded at maturity or at any other time. Due to inflation, the premium may increase year on year, but so will the amount of any payout.
The insurer will pay for an insured event if you report it within the time limit set in the contract. It is worth paying attention to this, because in some cases (for example, an accident) you may be entitled to compensation under more than one claim – but if you fail to report it, you could lose a lot of money.
It is very important that life insurance also covers situations such as disability due to illness, because there are otherwise low-premium policies on the market that do not cover this.
You can take out risk insurance individually or join a group life insurance contract. With individual insurance, you can take out a personalised policy with a fixed premium based on your health and age. To take out an individual policy, you need to undergo an extensive medical examination, and to obtain the policy you need to go through a complex contracting process that requires you to be present in person.
Group term life insurance
In contrast, a group life insurance policy involves the creation of a risk community, which means that insurers contract with groups rather than individuals. Thanks to the group model, the insurer’s risk is shared and its costs are radically reduced, so that members who join a group can benefit from a range of advantages.
Firstly, the size of the risk pool allows the insurer to set a cheaper premium. Second, thanks to the community risk, the insurer does not assess the individual age of the members joining, so it offers a uniform premium for all, regardless of age or length of membership. As with age, the insurer is more tolerant of the health of the members joining, such as obesity, smoking or other lifestyle-related conditions, so there is no need for a detailed medical examination requiring a personal appearance, just a few questions to be completed. For all these reasons, group insurance, unlike individual insurance, can be joined completely online in a few minutes, without any major administration.