Life insurance is an individual insurance that economically covers the economic risks from the uncertainty of the life of the insured person . "The insured event is the experience of a certain point in time (survival event) or the death of the insured during the insurance period (death)."
Life insurances are personal insurance because the insured risk lies in the person. In the life insurance contract , an insurance benefit is agreed that is paid out to the policyholder or another beneficiary in the event of an insured event. In general, life insurance is taken out as a sum insurance . In the event of an insured event, the insurance benefit is provided as a cash benefit. The amount of the actual economic damage caused by the insured event does not matter.
Depending on the contractual agreement, death during a certain period of time (life insurance), experiencing a certain point in time (survival insurance), the occurrence of serious illnesses ( dread disease insurance ), occupational or work incapacity , need for care or others, can directly affect human life related risks must be determined as an insured event and trigger a benefit.
Annuity insurance also belongs to the life insurance. A regular payment from the life insurer is due as a benefit, hence the name "pension insurance".
The Social Security secures similar risks, but not based on an insurance contract. The demarcation from health insurance , in particular for benefits in the event of occupational disability or incapacity for work , is regulated by national law. Accident insurance , which does not belong to life insurance, is differentiated from the fact that it only provides benefits in the event of death or disability as a result of an accident .
History and creation
The first life insurances arose in ancient Rome , where “funeral associations ” covered the burial costs of their members and provided financial support for surviving relatives. Other forerunners of modern life insurance were the tontines in 17th century France. Merchants, ship owners and so-called underwriters met in Lloyd's Coffee House , the forerunner of today's well-known insurance exchange Lloyd's of London . Here, performance commitments for people's lives were made. In other respects too, bets on people's lives were common in England. This meant that later life insurance contracts could only be concluded if an economic interest in the survival of the insured could be proven.
In this "early period" of life insurance, contracts provided for benefits in the event of death or experience of certain people, but this was not yet done on a systematically calculated basis, but either in the form of a contribution or a kind of bet.
A historical variant of risk insurance is betting insurance . This was a business practiced in England in the 18th century, but was banned as early as 1774. Two people bet on the life of a third person that she would still be alive at a certain point in time, and the third person did not have to give his consent.
Edmond Halley is considered to be the inventor of life insurance mathematics . Modern life insurance policies were launched in the late 17th century. The first Society for Equitable Assurances on Lives and Survivorships 1762 in London to work with actuarially determined age-related contributions is considered to be "modern" . On this basis, death benefit funds were also established in the 19th century .
In Germany, life insurances were sold by Gothaer Lebensversicherungsbank from 1827 , the first German life insurer ever founded by Ernst-Wilhelm Arnoldi . Arnoldi, a son of the Thuringian residence city of Gotha, is therefore also considered the father of the German insurance industry. The long-standing head of Gothaer Lebensversicherungsbank, Gustav Hopf (1808–1872), is in turn seen as the “inventor” of the traditional form of German life insurance for death and survival (mixed insurance). Otto Gerstenberg , director of Victoria zu Berlin , introduced life insurance for everyone in Germany in 1892 , which turned life insurance into national insurance regardless of the social or financial situation of the insured.
After the First World War, a Reichsheim working group was established .
Life insurance sales also began in the US in the late 1760s. The Presbyterian Synods in Philadelphia and New York The Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers was founded in 1759; Episcopalian priests organized a similar fund in 1769, but both were still based on the pay-as-you-go system.
On June 18, 1583, Walter Gybbons as an insured person and 16 underwriters signed the first (traditional) term life insurance contract in London. Should he die within a year, the amount of 382 pounds was to be paid to Councilor Richard Martin.
Before the American Civil War, many companies in the USA insured the lives of slaves - however, the beneficiaries of any compensation were the slave owners. In 2001 and 2003, statutory regulations forced life insurers to search their archives for such life insurance contracts in order to satisfy the claims of descendants if necessary.
Life insurance can be divided into basic forms according to various criteria or are combinations of these:
Differentiation according to the insured event
- Life insurance: The benefit is paid in the event of death during the insurance period; one example is term life insurance .
- Endowment insurance: The benefit is provided when the end of the insurance period is reached. A pension can be interpreted so that each annuity payment is an endowment insurance.
- Occupational disability insurance : insurance benefits in the event of occupational disability.
- Dowry insurance : insurance benefits in the event of marriage.
- Birth insurance: insurance benefits upon the birth of a child.
Differentiation according to capital formation
- Risk insurance: There is no or only temporary capital formation here. The aim and purpose of risk insurance is to provide financial security for the surviving dependents (spouse, children, etc.) or the insured person in the event of occupational disability . Examples are term life insurance and disability insurance.
- Capital-forming insurance: Part of the paid-in premium is used to build up capital, which will later be paid out with certainty or with a high degree of probability. Examples are mixed insurance, life insurance, and annuity insurance.
Differentiation according to the determination of the insurance benefit
- Conventional life insurance: The insurance benefit is agreed as a fixed amount of money in a specific currency.
- Unit-linked life insurance: The insurance benefit is agreed in unit units of a fund.
- Index-linked life insurance: the insurance benefit is agreed on the basis of a different index.
Differentiation according to the type of insurance benefit
- Endowment insurance: One-time benefit through payment of a capital.
- Exemption from contributions: The service is provided in the form of an exemption from further contribution payments. The agreed services remain in place despite the discontinuation of the obligation to pay contributions. ( Term-Fix insurance , training insurance , dowry insurance, birth insurance, additional occupational disability insurance).
- Pension insurance : ongoing payment as a survival-dependent pension.
Differentiation according to the number of insured persons
- Insurance for a lifetime: an insured person.
- Insurance for connected lives: The benefit is paid if, depending on the agreement, the first or last, usually two or more insured persons, dies.
- Group insurance : As part of an insurance contract, several people from a certain group of people, e.g. B. the employees of an employer , insured. In each case, however, it is a question of life insurance, not of connected life. This is in contrast to a design in which a separate contract is concluded for each insurance ( individual insurance ).
Differentiation according to the fixing of the price / performance ratio
- Fully guaranteed contributions and benefits: The contributions and benefits are agreed in the contract as a fixed amount in a currency or as fixed units of an index.
- Contracts with a premium adjustment clause: The premiums can be adjusted to changed circumstances with effect for the future, i.e. increased or decreased depending on the agreement. (Example: Section 163 VVG)
- Contracts with surplus participation : On the basis of surpluses remaining after the provision of the agreed minimum services, contributions are reimbursed or additional services are provided.
- Contracts with additional interest payments or other voluntary benefits: The account of the contract is increased by additional interest at the discretion of the insurer (example: Universal Life in the USA ) or additional benefits are only provided at the discretion of the insurer (e.g. . Life insurance in Belgium ).
- Contracts at cost: contributions are levied on a pay-as-you-go basis or reimbursed except for the necessary parts. (Example: VVaG in Sweden ) Here, however, a fee for contract administration or amounts for the formation of equity are usually withheld.
Differentiation according to the type of contribution payment and flexibility in contributions and benefits
- Single premium insurance: The policyholder's obligation to pay contributions under the contract is fulfilled when the single premium is paid. All contractual services are then provided without any further contribution payments.
- Insurance against current premium: The premium is paid at regular intervals throughout the entire insurance period. Monthly, quarterly, half-yearly and annual contributions are common. There is an abbreviated premium payment if the premium payment is only intended for part of the insurance period. Thereafter, the insurance is free of charge as with single-premium insurance.
- Insurance with flexible premium payment: The policyholder can decide within a certain time frame and often also with regard to the amount when he wants to pay which premium. This mostly happens with contracts that are managed as an account. From the time of payment, interest is paid on the contributions and this also determines the subsequent benefit. The benefits depend on the time and the amount of the contribution payment.
- Insurance with regular single premiums: The policyholder can freely decide whether, when and in what amount he pays premiums. As with flexible contribution payments, the amount of the benefit entitlement depends on this. Such contribution payments usually only increase the protection in the event of death by the amount paid, as otherwise a new health examination would be required.
- Flexible insurance: During the contract period, the policyholder can increase or decrease contributions, increase or decrease entitlement to benefits (with a corresponding increase or decrease in contributions), include or exclude certain types of benefits and withdraw money from the account. In particular, the increase in benefit entitlements usually requires a new health examination.
With these classifications it should be noted that a single life insurance contract can be complicated and can combine several basic forms. There are contracts that provide for both capital and pension benefits; death and survival components can also be combined in the contract.
Numerous additional insurance policies are also offered. The most important of these is occupational disability insurance , which in this context is referred to as supplementary occupational disability insurance (abbreviation BUZ). Other additional components are the additional insurance for accidental death, which insures a multiple of the simple death benefit in the event of accidental death, and long-term care insurance benefits. In some countries, dread disease insurances are also widespread, in which the lump-sum payment otherwise due in the event of death is paid when certain serious illnesses occur.
Details of major types of life insurance
Risk insurance is available in various forms. What they have in common is that a benefit from the life insurer is only due if the insured event (e.g. death, then referred to as term life insurance , or occupational disability, then referred to as occupational disability insurance ) occurs during the insurance period. If the insured event does not occur during the insurance period, no benefits are due. The dues are paid only for the promise of the life insurer, to provide a service in the insurance case, and is therefore much lower than the contribution to capital life insurance.
Application examples are:
- Protection of economically dependent relatives
- Securing liabilities
- Carrier tariff for one or more supplementary insurances (supplementary occupational disability insurance)
The most common is term life insurance. In the event of the death of the insured person, it pays out the insured death benefit (sum insured) to the beneficiaries . This is available with a constant or decreasing sum insured. The latter is mostly used to secure loans with continuous repayment . The sum insured decreases over time to the same extent ( annuity ) as the loan is repaid. In this context, banks also offer it in connection with loan and credit agreements as so-called residual debt insurance . Often - for the security of the lender - the conclusion of such a residual debt insurance is a prerequisite for granting a loan.
There is also term life insurance on connected lives as a special case. With this form of term life insurance there are several insured persons. The insured death benefit is due only once in the event of the death of an insured person during the insurance period. Term life insurance for connected lives serves to provide mutual protection for people who are economically dependent on one another (business partners, partnerships, married couples without children).
Capital-forming life insurance policies are characterized by the fact that, in addition to very insecure benefits, they also provide safe or almost safe benefits. These secure or almost secure services must be saved for each individual contract. The insurer must therefore form the capital required for the (almost) secure service for each individual contract up to the due date of the service. Only insecure benefits can be financed according to the insurance principle, where the few benefit cases are paid from the contributions of those not affected.
Capital-forming insurances are those that, due to the high probability of the payment being due, require a significant saving process at the insurer. At the same time, however, this description shows that there is no fundamental difference between capital-forming insurance companies and others, but that it is a traditional one. Insurers must raise capital for all insurance policies. Those for whom this applies to a particularly high degree are referred to as capital-forming.
The classic form of capital-forming insurance is mixed life insurance, a life insurance covering both death and survival. The benefit (sum insured) is due in the event of death or experiencing the expiry. Since a service is provided in any case, namely either in the event of death before or when the contract expires, the minimum service to be provided must be saved by the insurer for each individual contract. However, if the insured person dies very early, the obligation to pay benefits is significantly higher than the amount saved up to now, which can only be financed according to the insurance principle.
Mixed life insurance in its various forms, including unit-linked, is the predominant form of life insurance in many countries.
The pension is an endowment insurance. A distinction is made here between the pension insurance that starts immediately, in which the pension payment begins immediately after payment of a single premium, and the deferred pension insurance, where the pension payment only begins after a certain period of time, the deferment period. The latter can provide for the payment of a single premium or, very often, an ongoing premium payment until the end of the deferral period. In the event of premature death during the postponement period, at least the sum of the contributions paid to date is usually paid as a death benefit, so that traditional pension insurance does not contain any actual death risk during the postponement period, but only the survival risk while drawing a pension. It is very likely that a certain number of pension payments will occur, as previous death is unlikely. Hence, capital will be accumulated for these future annuity payments as well. The further pension payments then become increasingly unlikely, so that the financing according to the insurance principle gradually takes precedence over saving. If the life happens to be very long, the overall benefits are significantly higher than the contributions actually paid. It can also be agreed that payments will still be made when the pension starts to be drawn even if the insured person has already died, the so-called guarantee period. In some countries, the deferred pension insurance is sold as a temporary savings contract with the promise that the amount saved can be used to purchase an immediate pension insurance at the end of the period. The conversion factor with which the resulting pension is determined from the amount can already be agreed when the contract is concluded, but is often at the discretion of the insurer.
Typical applications are:
- Investment, savings product.
- Survivors' provision, but also to cover inheritance tax , so-called fake ( inheritance tax insurance ).
- Combination product for family security and capital accumulation (mostly with the goal of old-age provision)
- Loan security, in particular in connection with real estate financing
- Reinsurance of pension commitments in company pension schemes ( reinsurance )
- In special forms of capital investment for a specific purpose, which should be achieved even if the investor does not experience the end of the savings process himself (the training insurance and the dowry insurance ).
If one wants to divide capital-forming life insurance into different forms and groups, a sharp distinction must be made between sales names and types of insurance. In terms of insurance, inheritance tax, succession and death benefit insurance, for example, belong to the same form of insurance and, for many life insurers, they usually do not differ technically. Against this background, the following technical subdivision results:
- Insurance in the event of death and survival or mixed life insurance (capital-forming capital life insurance, also known colloquially in Germany as capital life insurance )
- Both the death before and the experience of the end of the contract period (expiry) represent an insured event and lead to the payment of the agreed sum insured. In these contracts, the sum insured in the event of death can also be lower or higher than the sum insured in the event of an experience. In this case, the insurance has the character of a death or survival.
- Lifelong death insurance (e.g. in the form of death benefit insurance)
- The benefit is paid when the insured person dies or reaches an agreed, very old age. This life insurance policy often ends with a certain age (around 80 years). After that, the life insurance remains free of charge. Some contracts offer the option of calling up a survival benefit at the end of the premium payment period, so that the life insurance is terminated or remains with a reduced sum insured. The contract thus ultimately corresponds to a mixed insurance with a very late expiry.
- Capital-forming insurance on two connected lives
- With this variant there are two insured persons. The sum insured is due only once in the event of the death of the insured person who dies first during the insurance period, but no later than the agreed expiry (insurance for the first death). There are also less frequent contracts in which payment is only made when both insured persons die or when one of the two survives (insurance for the second death). The insurance on connected life is also incorrectly referred to as “connected life insurance”. Linked life insurance is life insurance that has several types of benefits. This is the case with endowment life insurance, which provides benefits when the contract ends and in the event of death.
- Termfix insurance (e.g. in the form of training insurance)
- With Termfix insurance, the sum insured is always due on a predetermined date (hence Termfix). The premium payment is insured here. If the insured person (usually the contributor) dies, there is no further obligation to pay contributions without any consequences for the amount of the benefit. The risk lies in the premature death of the contributor, as this eliminates the obligation to pay the contributions required to finance the sum insured when it expires. Marriage and birth insurance are similar, although the timing of the benefit also depends on when a second insured person gets married or has a child. If this does not happen by a certain point in time, the benefit will still be paid out.
- Endowment insurance, mostly only in the form of annuity insurance
The variable life insurance , and the unit-linked pension (rarer the index linked life insurance ) are endowment policies where the total power to claim or at least a substantial part is bonded directly to the performance of certain contractual financial instruments, mostly fund shares, or other indices. As a result, the insurer assumes no obligation to provide this benefit in an absolutely certain amount. In the meantime, however, there are also forms that provide for an investment in guarantee funds or for which the insurer also promises a certain minimum benefit.
The insurers are legally obliged to cover the corresponding obligations completely with the relevant financial instruments or, in the case of indices, with financial instruments that replicate the relevant index as precisely as possible. The corresponding capital investments of the insurer are thus held for the account and risk of the policyholder. The changes in value or investment income from these contractually determined investments are entirely borne by or in favor of the policyholder.
Since the capital investment is not made by the insurer with a view to reducing its own risk to secure a guarantee or for the benefit of the policyholder to achieve a reliable maturity benefit, the results of unit-linked insurance are usually very volatile and difficult to predict. Their suitability for basic care in old age is therefore controversial. The return can be significantly better, especially with long terms, but also significantly worse than with conventional life insurance policies, whose investments are characterized by a wide mix and diversification. In the case of basic care for old age, the possibility of a significantly poorer result, up to and including loss of capital, means a threat to livelihoods in old age. In the case of a supplementary pension over and above the essential basic stock, however, this can be different. Long-term statistical studies are irrelevant for the individual policyholder, as he has to make his retirement provision in a specific sequence of capital market cycles.
The policyholder can influence the investment strategy himself. He can often choose the investment funds associated with the contract himself from a more or less extensive range. In this case, it is often possible to distribute the savings contribution over several investment funds.
The customer can also change the selection of investment funds, even during the term of the contract:
- Shift (ing) - All or part of the existing fund balance is transferred to one or more other funds.
- Switch (ing) - The future new investments flow into new funds to be determined without changing the previous investments.
In the case of unit-linked life insurance, the sum insured in the event of death is often contractually determined as the sum of the contributions to be paid (contribution amount ) . With many providers, however, this can also be increased or reduced by policyholders at or even after the conclusion of the contract.
Other common options for unit-linked insurance are:
- Extension option. - The policyholder can extend the contract for another five years. This option makes sense because a fixed end of the contract can mean that you are forced to sell the fund units at a low level when the contract expires. This is only an alternative if you are otherwise cared for during these five years.
- Process management. - The insurance company transfers (shifting) automatically or after submitting the offer to the policyholder, usually five years before the conclusion of the contract, the existing fund assets to funds that are exposed to a lower risk of fluctuation (usually bond or money market funds).
- Transfer option. - After the contract has ended, the policyholder can have the fund shares transferred to his own custody account . (Payment in kind)
- In the meantime, there are also dynamic capital investment strategies which, as long as the expiry date is still in the distant future, invest more risky and, the closer the expiry date approaches, move into lower-risk investments. However, the more complex and individual the investment, the higher the investment costs, which in some cases significantly and certainly reduce the return.
- Retrieval option. - During the contract period, the customer can have any partial amounts paid out from the existing fund balance. (Partial buyback)
- Special payment option. - The customer can increase his invested capital through special payments in an existing contract. (Additional payment)
Unit-linked life insurances supplemented by guarantee components are offered as variable annuities .
Because the administration works purely on an account basis, unit-linked insurance can be more flexible and transparent than conventional contracts. However, any agreed flexibility also increases the costs of managing such products. Although there is a high level of transparency on the part of the insurer, it is often difficult to assess the chances of success of funds, even for experts. They are subject to the price risk of the investment funds. However, this risk can be mitigated by investing in low-risk funds, which, however, also have a significantly lower chance of returns. Ultimately, conventional insurance can be understood as a special case of unit-linked insurance, in which investments are made in a very low-risk and less volatile fund with high minimum guarantees and the remaining fluctuations can largely be eliminated through a profit sharing system. Because this is done with collective resources, the investment management costs are comparatively lower.
A status notification is the annual account statement of a capital-forming life and pension insurance, this also applies to unit-linked. It is intended to inform the insurance customer how the value of his insurance is developing and what benefits can be expected at the end of the contract. The content of the stand notifications is basically regulated by Section 155 of the Insurance Contract Act (VVG).
Since July 2018, the insurer has had to provide the following performance data for a capital-forming insurance contract in a status notification:
- the agreed benefit in the event of an insured event plus surplus participation at the relevant time specified in the status notification
- the agreed benefit plus guaranteed profit sharing when the contract expires or at the start of retirement, provided that the continuation of the contract remains unchanged
- the agreed benefit plus guaranteed profit sharing at the end of the contract or at the beginning of retirement, provided that insurance is free of premiums,
- the payout amount upon termination by the policyholder
- the sum of the premiums paid for contracts concluded on or after July 1, 2018; In addition, information on the sum of the premiums paid can be requested in text form.
A study by the market watchdogs at the Hamburg Consumer Center in 2016 revealed that status reports from endowment insurance companies often ignored the information needs of consumers. A quarter of the stand notifications examined did not fully meet the legal requirements applicable up to June 30, 2018.
From July 2018, changes to §155 VVG will place higher demands on the information content and the comparability of stand notifications.
Benefits for the policyholder
Life insurance transfers the economic risks from premature death (protection of the bereaved) and too long life (own maintenance requirements) to the insurer. This safeguards the policyholder's economic life planning with regard to the risks of death. Furthermore, risks from occupational disability and other permanent restrictions on earned income can also be covered under life insurance .
In addition, life insurance offers the option of investing in a very large and diversified capital investment portfolio that can be invested with very low liquidity requirements, the income of which is returned to the policyholders as part of the profit sharing. Otherwise, similar portfolios are not available to the consumer .
Life insurance contracts have an extreme term of decades compared to other contracts, for which the life insurer is bound to the agreed premiums, regardless of how the economic circumstances and life expectancy develop. In addition, the protection of surviving dependents and retirement benefits are of particular public importance. Therefore, in most countries with a developed insurance system, strict rules apply to such insurance services, which are intended to ensure that life insurers are always able to meet the obligations once they have been assumed for the entire duration of the contract. For this purpose, the insurers must have security means ( solvency ) available in accordance with the statutory provisions , i.e. investments that are not subject to any obligations.
This also includes the requirement that life insurers are only allowed to agree on premiums that are carefully chosen in the contracts for assuming the contractual obligations. In many countries, life insurers must be able to provide evidence that the agreed premiums do not fall below a level determined using actuarial methods and currently considered sufficient when the contract is concluded. In the EU, this is regulated by the Solvency II Directive (2009/138 / EC) , which came into force at the end of 2009. According to this, the insurers concerned must publish certain key figures on solvency, among other things. According to these, all insurers meet the solvency requirements in 2018, but twelve companies only with accounting aids granted by BaFin.
Since the main task of an insurance company is to balance risks between a very large number of risks of the same type ( risk balance in the collective ), insurance is always a mass business. A standardization of all contracts is therefore not only a requirement of rationalization, but above all a necessity in order to achieve the similarity of all contracts and thus to guarantee the economic task of risk reduction.
Calculation of contribution and performance
The insurers are free to calculate their premiums as long as they meet the legal requirements, in particular for careful calculation and equal treatment of policyholders.
In many countries, most life insurers still largely use the traditional actuarial methods that have been used for centuries when calculating premiums . In other countries, the contracts are almost all based on accounts. There are also products on the market whose contributions are calculated using the methods of financial mathematics . This means that complex financial guarantees can also be incorporated into the contracts.
In traditional actuarial mathematics, the insurance premium and the benefit are determined according to the principle of equivalence . This means that the total premium charged arithmetically, taking into account interest and outgoing contracts, corresponds to the services and costs of the insurer according to the selected calculation bases ( calculation bases ), i.e. In other words, no explicit profit surcharge, which is otherwise common in the price calculation of the economy, is apparently applied. The profits that are of course necessary for the life insurer arise implicitly due to the, as required by law, careful choice of the calculation bases, possibly after the policyholder's participation in profits. The equivalence principle is therefore a pure formality to simplify the calculation, but does not say anything about whether the contribution is fair or appropriate, as the calculation is not based on a realistic basis. In the case of policies with profit sharing, this is only decided when the profit is split between the life insurer and the policyholder.
The calculation bases are understood to be the imputed assumptions about the future on which the life insurer's internal premium calculation in a contract is based, i.e. the mortality table , the discount rate and the imputed costs. The discount rate can also result implicitly by taking into account various possible future investment income based on various capital market scenarios in the calculation (stochastic modeling of the contribution). Using these calculation bases, the premium for the contractual services is determined when the contract is concluded and this premium is then agreed with the policyholder in the contract. This agreed contribution can usually no longer be changed. In many countries it is mandatory to determine it so carefully that it is sufficient for the fulfillment of the contract over the entire contract period, which can be decades.
In addition to the calculation bases for determining the contributions, there may also be separate calculation bases for determining the surrender values , the contribution-free sums, subsequent contract increases, also through profit sharing. In addition, there are the calculation bases with which the value of the contract is determined for accounting purposes .
A life table is a table that assigns a probability of death for this year of life to each age, possibly separated by gender and other distinguishing features. Since the insured leave the collective upon death, the life table is also known as the elimination order . In addition to the mortality table, there are also tables of exit orders that show other biometric risks , such as serious illness, occupational disability, etc.
Differentiation and exclusions
The contributions take into account individual characteristics to the extent necessary, differentiating them according to the age, gender, state of health of the insured person at the start of insurance and the sum insured and the term (insurance period) of the insurance. Sometimes surcharges are also required for the exercise of certain professions or leisure activities. In many countries there are restrictions on the criteria according to which contributions can be differentiated; in particular, differentiation according to gender is often prohibited.
Life insurers usually only conclude contracts for the lives of people within certain age limits, and there are also upper and lower limits for the possible insured sums.
Additional benefits and profit sharing
Many contracts stipulate that in addition to the guaranteed benefits, policyholders receive additional benefits that are not guaranteed in advance or that parts of the premiums are reimbursed. This can be as part of a profit sharing happened or is at the discretion of the insurer. Many countries regulate such additional services. In others they are completely left to market forces.
Since the contributions for long terms are agreed very carefully, there are almost always significant surpluses after the guaranteed benefits have been provided. The additional benefits are financed from these surpluses. However, insurers are usually free to provide more additional services than they currently generate in excess.
If part of the contribution is reimbursed, only the net payment amount is payable. In some other countries, this premium is agreed immediately, but the insurer may, if it is no longer sufficient, increase the premium up to a contractually agreed maximum. In many countries there is also the option of accumulating the reimbursed contributions with interest and paying them out when the insurance period expires.
The prognosis of these additional services is naturally associated with a high degree of uncertainty . In many countries, insurers are allowed to show examples of possible benefits history when concluding a contract, and in some countries they are even allowed to make forecasts. In times of falling stock markets and low interest rates, the actual maturity payments are lower than shown when the contract was concluded. In order to prevent policyholders from being misled when taking out an overly optimistic presentation, many countries regulate such presentations.
Design rights and service restrictions
Entitlement to purchase
In principle, benefits are provided to the policyholder. Since this often does not make sense in the case of insurance for the death of the policyholder, which is a very common arrangement, since the service then falls into the inheritance , a comprehensive arrangement of entitlements has developed worldwide. The policyholder usually specifies when the contract is signed who should receive which benefit when due. He can change this definition later at any time, unless he has expressly determined it irrevocably. In the case of special insurances, especially in connection with company pension schemes or state-sponsored contracts, it can also be determined by law who should be entitled to benefits. In national law there are often extensive regulations on how purchase entitlements are to be interpreted.
Exemption from contributions
Most countries provide that the payment of premiums can be terminated by the policyholder at any time while the premium is being paid. In this case, the benefit entitlement will be reduced accordingly. In this case, additional costs are normally taken into account compared to contracts that only provide for the abbreviated payment of contributions from the outset.
Early termination and surrender value
In many countries it is contractually or legally stipulated that certain insurance policies can be terminated early by the policyholder. Insurers can normally only terminate the contracts in exceptional circumstances, e.g. B. in the case of incorrect information when concluding the contract or in the case of incorrect advice from the advisor. In the event of early termination, the policyholder receives the so-called surrender value, depending on the contractual agreement or the type of contract . In many countries this is contractually agreed according to the amount and is often subject to legal requirements. Often, however, it is also largely at the discretion of the insurer, even after the contract has been concluded. In particular, insurers often reserve the right to reduce surrender values if the current value of the covering investments is lower than the surrender value. This is to prevent the policyholders from speculating against the insurer with the termination.
The surrender value is usually much lower in the first few years than the sum of the contributions paid up to now, and in some countries it is also significantly lower than the current value of future claims. Some countries stipulate that the surrender value must at least equal this current value. A positive return on the paid-in contributions is usually only achieved after a period of several years. The reason for this is that the contributions are higher than would be required for the provision of the pure services. Therefore, the value of the contract is initially low compared to the initial contributions paid. In addition, only part of the contributions contribute to the surrender value. Contribution parts for insurance cover and costs of the already completed time do not contribute to the surrender value.
Cancellation discounts are often agreed. They are justified by the fact that the life insurer has to hold investments of higher liquidity and correspondingly lower returns for premature withdrawals and therefore cannot implement the desired maturity transformation in an ideal-typical manner. In practice, these services are usually provided from current cash flows, but since this capital is then not available for new investments, the damage has nevertheless arisen from an imputed point of view. Another reason is the anti-selection that occurs, as there is a risk that bad risks in particular will remain in the stock. In addition, early termination also means additional administrative work.
Suicide and murder of the insured person by the beneficiary
In the event of suicide by the insured person , the insurer is normally exempt from payment provided that the suicide occurred in a clear-minded manner. However, the surrender value often has to be paid out. In many countries, benefits are not paid to the beneficiary if he has murdered the insured person .
Secondary market and policy loan
In many countries, instead of terminating them, contracts are actively traded in markets, the so-called secondary market for life insurance (used policies). When acquiring the claims from an existing life insurance policy, speculation is made about the amount of possible future additional benefits. Because of the high uncertainty associated with this, however, a fairly high discount is usually taken. Investments in such used policies are therefore a speculative investment.
In many countries, insurers grant policyholders an advance payment for future insurance benefits. Such advance payments can also be designed like loans. Hence, they are known as prepayments or policy loans. They normally earn interest, at least to the extent that interest is implicitly paid on the insurance benefit.
Costs & fees
For the purpose of improved consumer protection, EU requirements have now been implemented in German law, which give interested parties important information and transparency about the contract costs incurred before concluding a contract.
- Statutory product information sheet: The statutory product information sheet (PIB) breaks down the acquisition and distribution costs as well as the annual administration costs of the contract. This sheet must be made available to consumers before a contract is concluded.
- Effective expense ratio: The effective expense ratio is also specified in the PIB and represents the contract costs as a reduction in return.
In Austria, other terms are sometimes used in the field of life insurance than in Germany:
|Designation Austria||Designation Germany||meaning|
|Life or death insurance||Term life insurance||Pure death protection|
|Life insurance||Savings plan||Pure savings plan without insurance cover, in the event of death usually only the sum of the contributions paid up to that point is reimbursed or the aliquot share of the sum insured.|
|Survival and endowment insurance||Mixed endowment insurance||Death protection combined with survival insurance|
|bonus||Contribution||in the case of mutual insurance associations, one speaks of a contribution. In the case of stock corporations from a premium. In actuarial mathematics, one mostly speaks of premiums.|
|Profit sharing||Profit sharing|
|Policy||Insurance policy||Contract document|
|Single premium||Single premium||One-time premium payment|
The negative experiences of the world economic crisis led to the creation of a security law in 1930 , with which the insurers z. B. were encouraged to open a so-called security fund in favor of the insured. The regulatory authority today is Finma .
- Heinrich Braun: History of life insurance and life insurance technology . 2nd Edition. Duncker & Humblot, Berlin 1963.
- Christian Führer, Arnd Grimmer: Introduction to Life Insurance Mathematics . Verlag Versicherungswirtschaft, Karlsruhe 2006, ISBN 3-89952-226-5 .
- Volker Kurzendörfer: Introduction to Life Insurance . 3. Edition. Verlag Versicherungswirtschaft, Karlsruhe 2000, ISBN 3-88487-859-X .
- Thomas Leithoff: The unit-linked insurance . Verlag Versicherungsjournal, Ahrensburg 2013, ISBN 978-3-938226-29-2
- Jens Petersen : Life insurance under civil law . In: Archives for civilist practice (AcP) . 204 Vol., 2004, pp. 832-854.
- Axel Thomas Rüttler: State funding of life insurance as a pillar of private pension provision. A comparison of developments in Great Britain and Germany with a view to statutory pension insurance . Dissertation. University of Regensburg, 2003. (full text)
- Holger Siebert , Lukas Lorenz: Heirs and gifts with life insurance . Verlag Versicherungswirtschaft, Karlsruhe 2017. ISBN 978-3-89952-883-1 .
- http://www.gdv.de/zahlen-ffekten/lebensversicherung/ , accessed on January 13, 2016
- Definition of life insurance In: Gabler Wirtschaftslexikon , February 14, 2013.
- Franz Tonndorf, Georg Horn: Life insurance from A to Z. 6th edition. Karlsruhe 1970, ISBN 3-88487-759-3 .
- June 18, 1583: First life insurance concluded, WDR ( Memento of October 24, 2008 in the Internet Archive )
- Investigation of the market watchmen of the Hamburg consumer center
- Rafael Kurz, Henning Kühl: Solvency ratios and mandatory reporting by German life insurers. In: Policen Direkt Magazin. Policen Direkt GmbH, April 24, 2019, accessed on July 16, 2019 .
- SH Rechtsanwälte: Compensation for incorrect advice when arranging life insurance. In: SH Lawyers. SH Rechtsanwälte, accessed on October 18, 2019 .
- Swiss Life leaflet: Securing Profitline single premiums. 2002.