What benefits does term life insurance provide?

With term life insurance, you can provide financial protection for your family or other surviving dependants and give them the security that they will be provided for when you die. The insurance policy can also be used as collateral for a loan, such as a mortgage.

In the event of the death of the insured person, term life insurance pays an agreed sum to those named as beneficiaries in the policy, for example family members. It therefore only provides benefits in the event of death.

The beneficiaries do not have to be family members but can be any other person. Your surviving dependants will receive the sum insured even if you have only been paying premiums for a short period of time. However, you should be aware that the sum insured will only be paid if the insured event, i.e. the death of the insured, occurs during the term of the policy.

When you take out term life insurance, you pay your premiums in exchange for the promise by the life insurer that, in the insured event – and only then – they will provide the agreed benefit by paying the sum insured to the persons specified by you. In contrast to endowment insurance, the premiums paid for term life insurance are not used to build up capital for an endowment benefit. This kind of life insurance is not used to accumulate capital. The premiums are therefore considerably lower than for endowment insurance.

If the insured person survives the agreed term of the contract, they do not receive an insurance benefit. Premiums are also not reimbursed because the insurer uses the premiums to bear the risk. The insurance policy simply expires.

If the policyholder takes out insurance on somebody else’s life, i.e. if the insured and the policyholder are not the same person, the insured person must – under certain conditions – give their written consent before the contract is concluded in order for the policy to become effective.

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 correctly. This is important for the calculation of premiums. If the insurer is not informed about any pre-existing conditions or other risks, they may refuse to pay the death benefit.
• You will also be subject to additional obligations. You should therefore carefully read your insurer’s general terms and conditions for term life insurance (Allgemeine Bedingungen für die Risikolebensversicherung).

Where can I take out term life insurance?

You can take out term life 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 term life insurance cost?

The premiums for term life insurance depend on various factors, for example the agreed sum insured and the term of the policy. Personal factors, such as the insured’s age, health and other risk factors, such as smoking or participation in extreme sports, are also relevant. It can help to compare prices since different insurers assess risk factors differently.

Make sure the agreed insurance coverage is sufficient for your needs. If the insurance is intended to safeguard a loan, rather than provide financial security for your family, then the amount of the policy is normally aligned with the loan amount.

Life insurance is generally subject to tax benefits. Local financial 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 term life insurer required to provide?

The insurer must provide the following information:

• Insurance product information document: this contains the most important information about your policy in a compact format and includes, for example, details of your insurance protection, contributions and termination periods. The product information document must also include the acquisition and distribution costs, administrative costs and other costs.
• Customer information: you must receive information about the insurer, the services provided, the contract and available legal protections.
• General insurance conditions for term life insurance (Allgemeine Versicherungsbedingungen für die Risikolebensversicherung).

What can I do if I no longer want term life insurance?

You have the option of cancelling your policy. Policyholders can normally terminate life insurance contracts for which regular premiums are paid without observing a notice period. However, the termination will only take effect at the end of the insurance period. Usually, the earliest termination date is therefore the end of the first policy year. The insurance period is the period of time for which the premium is determined. This is normally one year. Details of the conditions and consequences of terminating a policy are contained in the general insurance conditions underlying your insurance policy. As a precaution, you should read this document before terminating your policy to avoid any negative consequences.

Term life insurance policies where the entire insurance premium is paid in one lump sum are an exception. There is no statutory right of termination for such policies. However, right of termination may be included in the general insurance conditions and thus form part of your contract.

As a general rule, premiums will not be reimbursed when you terminate a life insurance policy early.

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. BaFin cannot enforce your rights as an individual. That is the responsibility of the courts.

The quality and contents of insurance policies are not subject to review by BaFin, and BaFin also does not approve insurance terms and conditions. In the area of life insurance, insurers are generally free, in accordance with the statutory requirements, to decide on the design of their policies, the scope of coverage offered and the calculations underlying their insurance products (contractual freedom). 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.