Cashing in foreign life insurance policy - Taxable in Switzerland?

Taxes
1

I will likely be transferred ownership of a permanent life insurance policy (I am the insured person) in another country. Upon quick inspection it looks like it has been a not-so-great deal so far. These types of policies are very difficult to evaluate and compare as the portion of the cost that goes into the insurance side and the portion that goes into the investment side (and the portion that pays ongoing fees) is not transparent.

I am planning to cash this policy out and invest the proceeds elsewhere. What do I need to know tax-wise? My inkling is that this is a capital gain and thus non-taxable in Switzerland (irrespective of the policy being domiciled here or elsewhere).

2

That’s also my understanding, life insurances are totally tax free (which is an ok deal if you can get a low cost one since dividend accumulation will be tax free).

3

You‘ll usually end up not getting much back. Never mix insurance with investments!

4

Really depends which type, for example the french ones have no insurance component (I know it’s weird) and typically around 0.5% ongoing fees, this can be somewhat competitive for a Swiss tax resident since the dividends are accumulating tax free.

5

Hi, thanks both. If tax-free, I will definitely be cashing it out and investing it. It is not a huge windfall, but as I have a degree of survivor benefits for my kids/spouse through Pillar 2 and am very healthy and fit, I see no reason to continue with a rather small life insurance policy whose end value will be eaten up by inflation anyway.

Essentially this was a policy taken out on me when I was about 15 years old. Based on how much a permanent life policy seems to cost for a teenager (looks like about 20CHF/mo per 100k) and the duration of the policy, I reckon that the investment side of it returned about 7% annualised (probably less in CHF terms, though)… so not too terrible, although I have no idea what it is invested in.

6

Well, if the main benefit is a tax advantage, maybe you can keep it as an investment?

7

How life insurance is taxed depends on the kind of life insurance in question. Permanent life insurance (cash value) is generally tax-free if it does not fall under the Swiss pillar 2 or pillar 3a. Tax rules and rates vary between cantons, but the rules shown here generally apply in all cantons AFAIK: