Caring for your loved ones – this is the essence of life insurance. Through life insurance, you provide financial protection for yourself and your close ones in difficult life and health situations, while also securing funds for future joyful moments.

The market offers a variety of life insurance products. They all cover risks such as death and loss of working capacity, but they also differ in other aspects. It is important to understand their nature and specifics so that you can determine which product would best meet your individual needs.

Generally speaking, life insurance policies are divided into two main types: term (risk) insurance and mixed insurance (savings, investment, -linked to loan/credit, annuity, children’s, and others).

 

Term Life Insurance – financial support in case of severe events
With term life insurance, the insured sum is paid only upon the occurrence of an insured event. In case of death of the insured person, the money is received by their beneficiaries. In the event of temporary or permanent loss of working capacity, the compensation is received by the insured person.

-          Risk Coverage
The main coverage of life insurance is the risk of “death” as a result of an accident or illness, with an option to include road traffic accidents. Loss of working capacity – either temporary or permanent – is also available as coverage in various forms. Additional coverages can also be added by the policyholder, such as medical expenses related to a covered risk – surgical treatment, diagnosis of critical illnesses, second medical opinion, etc.

-          Insured Amounts
It is crucial to decide the amount for which you wish to be insured. On the one hand, consider what size of compensation would meet your needs in the event of a serious incident. On the other hand, take into account your financial capabilities, because a higher insured amount means a higher policy price, i.e., a higher insurance premium. Note that the policy may state different insured amounts for different risks – for example, death from an accident may be covered for 50,000 EUR, death from illness - for 30,000 EUR, and death from a road traffic accident - for 40,000 EUR.

 

Life Insurance Linked to a Loan
These are essentially a type of term life insurance. It is a common practice for banks (lenders) to require a life insurance policy as a condition for granting long-term or substantial loans, in order to guarantee repayment. In the case of mortgages, banks have the right to require the conclusion of a life insurance policy either with an insurer of your choice or one proposed by the bank. You can also take out such a policy on your own initiative if you wish to ensure peace of mind for yourself and your loved ones in case you become unable to repay your loan due to illness or accident.

Life insurance policies linked to a loan are concluded between the insurer and the insured, but the beneficiary is the bank (the lender), meaning that in most cases, the compensation is paid to the bank, not to the borrower. The policy term matches the loan term, and the insured amount for the main risks (death and disability) corresponds to the outstanding amount of the loan, gradually decreasing as the loan is repaid. In addition to the main risks, optional coverages such as temporary incapacity for work due to an accident or illness and involuntary unemployment may be included.

 

Mixed Life Insurance
As the name suggests, these types of policies combine two components – risk and savings/investment. This combination means that during the term of the policy, you receive insurance protection related to your life and health, and after the policy term ends – provided no insured event has occurred – you receive the amount you have paid in premiums, along with any earned investment return. This way, you ensure funds for achieving your long-term life goals – whether it be quality education for your children, peace of mind after retirement, or something else.

Since they are related to the accumulation and investment of savings, mixed life insurance policies are long-term – from 5 to 25 or more years. Naturally, there is an option to terminate your policy early, i.e., to exercise your “surrender right,” but this usually results in a loss of part of your investment, especially if the policy is terminated in the earlier years of its term.

There are various types of mixed life insurance – endowment life insurance (classic), life insurance in favor of a child, life and annuity insurance, life insurance linked to an investment fund (so-called investment insurance). The latter is becoming increasingly popular among consumers due to the potential for better returns compared to traditional savings life insurance.

 

Life Insurance Linked to an Investment Fund
With this type of policy, the funds from your premium contributions are invested in financial markets. You may choose one or more investment funds, offered by the insurer, in which your money will be invested. Carefully review the pre-contractual information provided by the insurer – general terms and conditions, the “Key Investment Information” document – and do not hesitate to ask questions. You must be aware that you bear the investment risk yourself, i.e.  with investment-linked life insurance policies the insurer does not guarantee a specific return or the preservation of your invested capital. The amount you will receive at the end of the policy term depends on the investment performance and reflects the net value of your assets – meaning that negative returns are possible, and you may receive less than what you have invested.

 

In addition to financial peace of mind, life insurance policies offer other important advantages:

-          Claims under life insurance policies are guaranteed up to 100,000 EUR in the event of insurer insolvency. This mechanism is provided by the Guarantee Fund through its Security Fund.

-          Claims under life insurance policies are protected from enforcement – i.e., a bailiff cannot seize them. This means you or your heirs may rely on the life insurance payout even in case of financial difficulties.

-          There are tax benefits for life insurance - this benefit works as follows: your annual tax base (taxable income), based on which your tax is calculated, is reduced by the amount of premiums paid during the year for a life insurance policy. The amount by which your taxable base can be reduced is limited to a percentage of it. However, a final tax is due on the amount paid out at the end of the policy, and it is determined depending on the policy term.

 

Useful link:

Security Fund