3b pillar deductible in Geneva vs standard life insurance

[macwood]

Hi everyone!
So, I hope it won’t be “yet another post about the 3rd pillar scam” I’ve read several threads but I’m still a bit confused.

I implemented a classic mustachian setup, nothing new… 3 months of emergency fund, saving roughly 45-50% of pay, using VIAC 3a and investing in the usual cheap ETFs via the usual cheap broker, no gaps in 2nd pillar, no fancy cars, no Vuitton bags etc etc (just a passion for vintage motorbikes, but it’s under control )

But I have a very anti-mustachian tool as well… the 3B pillar at the insurance.
At the time I thought it was not that bad because it’s deductible in Geneva (I don’t put more than what I can deduct) and it’s invested 40% in equities (through the Pictet LPP 40 fund: Bloomberg - Are you a robot?).

Doing a very quick calculation, if I exclude their “average” or “good” scenarios, and I will get the minimum amount they are promising at 65y… I will lose roughly 9k CHF in 40 years, ~225 CHF per year (the contract is 2018-2058)
I also hope Pictet will manage to do something better than the worst-case-scenario

But at the same time, with a standard life insurance I won’t get anything at all. I can cancel the insurance whenever I want, but I don’t get any money back.
The only advantage, might be a higher premium if I die or get unable to work… but is it really worth it?
Or the thing is that I could invest all this money more efficiently in ETF and just waste as less as possible for a cheap but decent life insurance, if needed?

For me it’s clear why we should stay away from 3A with life insurance.
But when it comes to a deductible 3B with at least some exposure to equities, is it still that bad in your opinion? Sorry for the n00b doubt, I know that for a comprehensive answer we would need to check the policy and read all the contract… but I’m wondering if it’s always a stupid choice to have this solution in place.

To be completely honest, I don’t think I’m going to cancel it so soon. I’ve been recently diagnosticated with an health issue that likely won’t allow me to get another life insurance for a while, so since I’m married I think it’s wiser to keep something “just in case” (yep, I know, “safety is an expensive illusion” )
But I still would like to understand and eventually change in the future, if there are better choices.

Cheers!

[FunnyDjo]

Hi,

Thank you for sharing.
On your 3b pillar how much is going to the saving part and how much is fee for the insurance ?
Have you check if your current 2nd pillar is not covering already your family from a disability or premature death ?

[nabalzbhf]

By the way is 3b somehow regulated, or it’s any life insurance?

Because the french life insurance market is very competitive, with somewhat transparent fees, and most products don’t have any expensive insurance component, it can be pure equity investment with (at least for some providers) reasonably low fees (comparable to an equity 3a like 0.5%).

Dividends inside a life insurance isn’t taxed, which might already make the fee worth it.

[the_p]

There are the following decision making issues I see:

• The first decision when taking life insurance should be: Do I need life insurance. If yes → explore options. If no → obviously, don’t buy something that you don’t need.

@macwood

But at the same time, with a standard life insurance I won’t get anything at all. I can cancel the insurance whenever I want, but I don’t get any money back.

• Life insurance is never free. No matter in what complicated prouduct it’s packaged, it will cost something, one way or another. So reiterating, unless one has consciously decided that one needs it, one is paying for something one doesn’t need.

@macwood

At the time I thought it was not that bad because it’s deductible in Geneva (I don’t put more than what I can deduct)

• Tax deduction isn’t free money. If for example Ferraris would become tax deductible, by buying a Ferrari that one doesn’t need, the primary effect is not having “saved taxes”, but spent a lot of money.

[macwood]

Well, I guess that if these things were easy for the average person to understand, we wouldn’t be discussing them here
Even though I still don’t have a very clear idea about what to do, you all gave me very good insights.

@FunnyDjo

On your 3b pillar how much is going to the saving part and how much is fee for the insurance ?
Have you check if your current 2nd pillar is not covering already your family from a disability or premature death ?

That’s a very good question that I actually didn’t think about.
I went to check on the policy and I couldn’t find the information. Basically, I can see:

• Insurance linked to investment funds with a constant death benefit, financed by an annual premium
• Waiver of payment of premiums in the event of incapacity to work
• Pictet Funds (CHF) - LPP-40-P, mixed funds, 100% allocation, the fund invests worldwide in bonds and equities. Equity share of 40% on average. Fund currency CHF.
• Guaranteed benefits in CHF …
• Total annual premium …

But this total annual premium is not splitted into categories, I can just see the amount I pay yearly.
I also have the “general conditions” attached but I think it has nothing to do… I’ll check if I can find in my messy files a document or fact sheet they gave with the policy.
I found this online, in the meantime https://www.helvetia.com/ch/web/en/private-customers/pension/private-pension/unit-linked-life-insurance.html

• Brochure (FR) https://www.helvetia.com/content/dam/os/ch/web/documents/private-customers/private-vorsorge/sparen-investieren/fr/plan-de-performance-fiche-info.pdf
• Brochure (DE) https://www.helvetia.com/content/dam/os/ch/web/documents/private-customers/private-vorsorge/sparen-investieren/de/performanceplan-infoblatt.pdf

I’ll read them now to check if I can carve the information

At the same time, that’s true that my employeer changed our 2nd pillar provider recently and according to the last statement I receive from the current one, we have pretty good death / disability benefits!
And if at some point I’d be financially independant, I’d move my 2nd pillar into a VBA like VIAC which offers free death and disability coverage: VIAC Vested Benefits - Flexible and cost-effective solution for your 2nd pillar assets.

@nabalzbhf

By the way is 3b somehow regulated, or it’s any life insurance?

Because the french life insurance market is very competitive, with somewhat transparent fees, and most products don’t have any expensive insurance component, it can be pure equity investment with (at least for some providers) reasonably low fees (comparable to an equity 3a like 0.5%).

Dividends inside a life insurance isn’t taxed, which might already make the fee worth it.

I think it’s not regulated, and that 3B is basically the name they gave to what in France would be an “assurance vie”.
And as you pointed out, the dividends (as capital gains) are not taxed… so in the long run it might be interesting if the fees are not too high. In Geneva and Fribourg you can deduct from taxes, but at the same time they will tax the withdrawal at the end of the contract.

@the_p

Life insurance is never free. No matter in what complicated prouduct it’s packaged, it will cost something, one way or another. So reiterating, unless one has consciously decided that one needs it, one is paying for something one doesn’t need.

This is very true… I guess that at the end of the day, it boils down to understanding how much it’s costing in hidden fees and how it will affect the returns from the funds where the money is invested.

Without the tax deduction, I wouldn’t do 3A and put everything into ETFs… but at the same time it’s still worth it.
I will try to understand if the 3B might be worth as well as an investment or if it’s better to get out…
I’m afraid it will be better to get out

[nabalzbhf]

@macwood

I will try to understand if the 3B might be worth as well as an investment or if it’s better to get out…

If the french insurance can be opened from CH, I’d suggest investigating it. It’s going to be miles better than the swiss ones (0.5% / 0.6% fees with transparent contracts).