What benefits does endowment insurance provide?

Endowment insurance is a combination of term life insurance with payment in the event of the death of the insured, and a long-term savings plan with payment including interest at the end of the policy term. If the insured dies during the term of the policy, the beneficiary receives the insured sum. If the insured person survives the term of the policy, the capital they have saved over the term of the policy is paid out to the policyholder, or to another person named by the policyholder. The insurer does not only pay the guaranteed insured sum; normally, they also provide a share of the profits generated by investing the policyholder’s premiums during the term of the contract (profit participation).

Unit-linked life insurance products, which normally only provide guaranteed benefits in the event of the insured’s death, are an exception.

In certain cases, the policyholder can borrow money against their endowment insurance policy by using the value of the policy as collateral for a loan.

You can also take out a life insurance policy on someone else’s life. In this case, the insured person must consent to the policy in writing before it can be taken out. Consent is not required, however, where the agreed benefits do not exceed the typical costs of a funeral, which is currently €8,000. Collective contracts for occupational retirement provision are also not subject to a requirement for consent.

What are the risks associated with endowment insurance?

Endowment insurance can be used to build up a private old-age provision alongside providing protection for family members in the event of the policyholder’s death. However, the persistent low-interest rate environment is having a negative impact on the amount of profit participation and thus on the returns of endowment policies. As an alternative, financial protection can be achieved using a risk-based product (such as term life insurance), and an investment product can be used to save for old-age provision. You should carefully research which option suits you best.

If you take out a unit-linked life insurance policy then you, as the policyholder, normally bear the capital market risk yourself. This is because, if your contributions are invested in investment funds according to this model, your policy may not provide the desired security if the relevant funds perform badly.

What are my obligations as the policyholder or insured person?

• As the policyholder, you are obliged to make the agreed premium payments on time.
• Answer the medical questions in the application truthfully and completely. Otherwise you risk losing your insurance coverage.
• Further obligations incumbent on the policyholder can be found in the general conditions for endowment insurance (Allgemeine Bedingungen für die Kapitallebensversicherung) for the insurer in question.

Where can I take out endowment insurance?

You can take out endowment insurance with an insurance company directly (for example in a branch or online). Alternatively, you can take out a policy via an insurance agent, insurance broker or independent insurance adviser.

How much does endowment insurance cost?

The maturity benefit depends on various factors, including the premiums, the performance of the underlying investments and the costs incurred. The premiums for endowment insurance comprise the savings portion, the risk portion, and the cost portion. The risk portion is based on personal characteristics, such as the age and health of the insured, and on certain risk factors such as smoking or participation in dangerous sports. It can help to compare prices since insurers assess risk factors differently.

The cost portion is used to cover the recurring administrative costs associated with the policy alongside one-time acquisition costs such as intermediaries’ commissions.

Consider the costs associated with the policy. You should also think about whether additional costs are charged by the person who advises you or sells you the insurance product.

The insurer must provide you, as the policyholder, with information about the costs included in the calculation of your premiums, in addition to other possible costs. The acquisition costs included in the calculation have to be stated as a single amount. Furthermore, any associated administrative costs must also be shown separately. The insurer must also state the reduction in yield. This is defined as the reduction in value over time as a result of costs and is expressed in percentage points.

When you take out endowment insurance, you can decide whether you want to pay premiums on an ongoing basis or as a one-time payment.

Life insurance is generally subject to tax benefits. Local tax authorities (Finanzämter), your tax advisor, or income tax assistance associations (Lohnsteuerhilfevereine) can provide information and advice. BaFin cannot provide advice on tax matters.

What information is the insurer required to provide?

The insurer must provide the following information:

• Key information document/insurance product information document: this contains the most important information about your product in a compact format and includes, for example, details of your insurance protection, contributions and termination periods. Here you should consider the initial costs, such as acquisition and distribution costs, in addition to recurring costs, such as administrative costs and other costs.
• Customer information under insurance contract law: you must receive information about the insurer, the services provided, the contract and available legal protections.
• General conditions for endowment insurance (Allgemeine Versicherungsbedingungen für die Kapitallebensversicherung).

What can I do if I no longer want endowment insurance?

If you no longer want endowment insurance, it is possible to cancel your policy. The insurer then pays you the surrender value.

As a general rule, you do not need to observe a notice period when cancelling insurance policies where premiums are paid on an ongoing basis or as a one-time payment. If you have agreed to pay premiums on an ongoing basis, however, termination will not take effect until the end of the current insurance period. Usually this is no earlier than the end of the first insurance year. The insurance period is the period of time for which the premium is determined. This is normally one year.

Seek out advice about possible alternatives to cancelling your policy. Cancelling a policy can have significant disadvantages for the policyholder. At the beginning of the insurance term, only a minimum amount is available as the surrender value and also in the years that follow, the surrender value may also not necessarily reach the value of the sum of premiums paid.

Details of the conditions and consequences of terminating a policy are contained in the general insurance conditions underlying your insurance policy (Allgemeine Versicherungsbedingungen). You should read this before deciding to terminate your policy.

If you are having difficulty paying the regular premiums, there are alternatives to cancelling the policy. Depending on your individual contract and subject to agreement by your insurer, you may be able to reduce your premiums or suspend premium payments altogether. In this case, you would no longer be required to pay premiums, but the contract would remain in place, albeit with reduced benefits. Details of the conditions and consequences of such an exemption from premium payments are also contained in the general insurance conditions underlying your insurance policy.

You can also sell your life insurance on the secondary market.

How are life insurers supervised?

BaFin supervises German insurance companies and monitors all of their business operations. BaFin’s responsibilities include ensuring that the legal and financial interests of all insured persons are adequately protected. In order to protect the interests of all insured persons, BaFin accepts and processes complaints about individual insurance companies. However, BaFin cannot enforce your rights as an individual. That is the responsibility of the courts.

The quality and contents of insurance policies and tariffs are not subject to review by BaFin, and BaFin also does not approve insurance terms and conditions. As a matter of principle, insurers have contractual freedom in the area of endowment insurance. This means that insurance companies can decide themselves whether and under what conditions they accept or reject applications for insurance, and can also decide on the scope of cover they want to offer. If BaFin determines that insurance terms and conditions are in breach of the law (in particular consumer protection law) or (high) court decisions, it can take measures to remedy or prevent such shortcomings.