Term Life Insurance
Life insurance protects your loved ones from financial catastrophe.
If your family depends on your income, you might want to consider life insurance to cover against the financial consequences of your passing.
This is most commonly done by setting an amount to be paid out, upon death, coveringa chosen period. €200,000 at any given time during 20 years, for example.
How should you calculate the amount of the insurance?
This can be quite a personal decision, depending on what your family needs and how much money is already available. It´s good to have at least 12 months expenditure covered, more if you have a dependent spouse caring for children, more again for very young children. A rule of the thumb says that the main earner of income should be covered at least for 3 times his or her yearly income.
The payout should also allow the family to pay off your mortgage, if you have one, so they do not need to worry about losing their home. You can decide to keep the insurance amount at the same level throughout the specified period, increase it regularly to keep pace with inflation, or reduce it regularly as your mortgage is paid off.
Tax optimisation of a term life insurance
There are ways under German tax law to make sure that the pay-out for the life insurance is tax-free. Ideally, one partner sets up the contract to insure the other partner´s life, so that the payout can be made directly to the survivor without being subject to inheritance tax. This can be especially important for unmarried couples, since the inheritance tax allowance for unmarried couples is only €20,000.
Finding life insurance at the right price.
Premiums are kept broadly stable throughout the contract period, but most German term life insurances make a difference between the net premium, which you pay in the first year, and the gross premium, which is the maximum you could end up paying during the period, if the insurance company´s calculations need adjusting. An offer which looks cheap now might not be so attractive in the long run. A few companies fix the premium for the whole period.
There are also special benefits that can make a difference. We recomend, for instance, to chose an insurance tariff that will pay out up to 1 year in advance if you are found to be terminally ill. That can give you the peace of mind to help investing the money in such a way that your family is taken care off, well. Or to spend some quality time travelling with your family while you still can.
As your independent broker, we will find term insurance with a reliable and stable price for many years to come. For professional advice contact us HERE