What benefits does private pension insurance provide?

If you decide to take out private pension insurance as a form of old-age provision, you will receive life-long pension payments starting at a certain age. This pension is paid out of the capital you have built up by paying insurance premiums. With the exception of products that are exclusively unit-linked, this normally comprises the contractually agreed amount in addition to profit participation, including participation in valuation reserves. If agreed in the contract, you can also chose to receive a lump sum instead of regular pension payments.

If the insured dies before reaching retirement age, it can also be agreed that their surviving beneficiaries receive at least the premiums paid or a set death benefit.

If the insured dies after reaching retirement age, their entitlement to the remaining insurance capital is forfeited: the capital is assigned collectively to all those holding a pension insurance policy with the insurer in question. In this case, the surviving relatives of the policyholder can only expect to receive benefits from the insurance contract if the deceased made arrangements to this effect. For example, the policyholder can ensure that their insurance contract provides for the reimbursement of premiums in the event of their death (minus any pension payments made), a guarantee period for pension payments, or another form of death benefit.

Private pension insurance can also be taken out with a single premium payment. With this form of pension, you can receive pension payments immediately. However, this precludes the option to receive the insurance benefit as a lump sum.

What are the risks associated with private pension insurance?

If you think the statutory pension will not be enough to maintain your standard of living in the long term, you can support yourself with private pension insurance. With guaranteed pension payments until the end of your life, you can secure an additional source of income for yourself or use the insurance to build up capital. Interest rates that have been low for years negatively impact on the amount of profit participation, which is normally paid out alongside the guaranteed pension payments.

If you take out a unit-linked pension 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.

It is normally not possible to terminate a pension insurance policy once you start receiving pension payments. This means you can also no longer access the capital invested. You should therefore decide in good time whether you would rather receive the capital you have built up as a lump sum instead of regular pension payments.

What are my obligations as the policyholder or insured person?

• As the policyholder, you are obliged to make the agreed premium payments on time.
• In order to receive pension payments, you must comply with certain obligations to cooperate and provide information. For example, you must inform your insurer in good time if your bank details change – and it is in your own interests to do so. The insurer can also demand proof of life. This is to ensure pension payments are not provided for deceased policyholders.
• Further obligations incumbent on the policyholder can be found in the general conditions for private pension insurance (Allgemeine Bedingungen für die private Rentenversicherung) for the insurer in question.

Where can I take out private pension insurance?

You can take out private pension 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.

You can also make use of an occupational pension scheme for employees. In this case, your employer takes out pension insurance for you as the insured. With this form of direct insurance, a portion of your gross salary can be paid by your employer directly to the insurer in the form of insurance premiums (deferred compensation). There are tax advantages to this procedure.

How much does private pension insurance cost?

The benefits (amount of pension payments) depend on various factors, including the premiums and the duration of the paying-in phase, but also the product costs. It can help to compare prices.

Consider the costs associated with the policy, such as the administrative costs included in the calculation of premiums and one-time acquisition costs, including intermediaries’ commissions. 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.

Private pension 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 private pension insurance (Allgemeine Versicherungsbedingungen für die private Rentenversicherung).

What can I do if I no longer want private pension insurance?

The policyholder can normally only terminate private pension insurance as long as they have not yet received any pension payments. Once the payout phase has begun, it is normally no longer possible to cancel the policy.

In the case of pension insurance policies covering risks for which the insurer is certain to be liable, the policyholder is entitled to receive the policy surrender value. However, the policyholder can usually expect to receive a reduced amount.

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 suspending premium payments are contained in the general insurance conditions underlying your insurance policy.

How are private pension 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 and tariffs are not subject to review by BaFin, and BaFin also does not approve insurance terms and conditions. Furthermore, BaFin does not supervise the pricing of investment funds, which in the case of unit-linked pension insurance make up the largest portion of the insurance capital. Insurers have contractual freedom in the area of private pension insurance. For policyholders, 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.