Ok so I made a simulation for the pro and cons of having a 3a pillar (not a life insurance) in my conditions.
Here are the hypothesis :
-My 3rd pillar allows me to have a tax refund of 1000 CHF every year.
Scenario A :
I don’t have a 3rd pillar. Every year, i invest 6768 CHF with a yearly return X%. The goal is to find X for which it starts to be advantageous to not have a third pillar.
Scenario B :
I have a third pillar. Each year i invest 6768 CHF in a ETF, for instance the one MP is talking about in one of his article (Swisscanto LPP 3 Index 45 R). The factsheet says that it performed 10% lately, but it also had negative years in the past. With conservatism i will keep a overall yearly return of 5%. It gives me after 10 years a total of 96151 CHF on my pillar.
But i have also received yearly 1000CHF, which I invest at X percent (same as in scenario A).
The result is that a third pillar is better if X is less than 7,65%. At this level the stash in both cases is around 110400 CHF.
If I can find better returns than 7.65%, I don’t need a 3a pillar. Plus i don’t have my money blocked on one or several accounts.
Some news on this issue :
I Spent the whole week in an email conversation with the client support of the life insurance.
-First email from them : “Don’t worry, if you stop paying in ten years, the value of the contract will already be in the green and you will have won money”. I Insist to have a clear calculation.
-Second email : “Ok, so you will have paid XXX in premium, invested at a 3.5% yield in ten years + YYY in taxes reductions = you will have made this much money”, which of course, is largely positive. But I insist to know the penalties of stopping paying in ten years.
-Third email "Ok you are right, there is indeed a penalty of around CHF 20’000 if you stop your contract in ten years.
There is no need to say that with this lack of transparency and the huge penalties, i stopped immediately to pay the premiums.
Even if the contract had other features (like death an invalidity insurances), the lack of transparency alone made me fly away.
interesting.
my current situation is that I know from the capital stashing part, i want to quit it. however i want to see that i can replace the death and work-unability insurences at somewhat similar expenses with other companies. then i have no reason left to continue.
update to my life insurance:
I just found on moneyland.ch that the three offers they have are between 350 and 450 per year, as opposed to th 550 per year in my current insurance. plus: it is about one sum that does not build up over time to the conract value.
what i joke that bought back then…
now i need to find out about a work-unability insurance that pays me chf 3000per year regardles off sickness or accident. if you know any details, please share!
Well, for the death insurance, i see it that way :
I don’t know for you but in case i would die, my family would receive an amount of about 180k CHF. I made the calculus that with my current saving rate and net worth, i should have at least 180k CHF total net worth in one year and a half.
The goal of a death insurance is to make sure that your family will not have financial difficulties in case you die. If I die after 18 months, my net worth would go to my family anyway. So they should not have any problem. So this transform the problem into the following : “Let’s not die in the next 18 months”, which is very different from “let’s not die in the next 35 years.” That is a risk i am willing to take.
Regarding the Disability/Work unability insurance, this is more complicated. I know that the first pillar will pay a monthly amount up to 2kCHF depending on how much is the disability to work. But appart from that i don’t find any other insurance that would make supplemental payments (except Life insurances).
Finally, the 3.5% was a “conservative” estimate of how the stash in the life insurance would perform. This estimate was made by the advisor, so there is no need to say that it is very optimistic, and that he never saw a bear market in the last few years…
@death insurance:
of couse we first need to find out our needs. however when i compared the one from the life insurance, i found it much worse than what i find on the market. that was my only point - and i see that you approach this completely different, using your stash for it.
@work unability:
my approach is to say “my current life insurance pays for itself chf 3000/y in case i get disabled” => “how much does the same CHF 3000/year cost on the market?” and i again find better prices in the latter.
therefore i conclude that for all 3 parts (stash buildup, death insurace and work unability insurance) i can get much better solutions on the market, and therefore i am going to cancel this insurance.
@3.5%: you should sit down and check calculate this. I have guaranteed 1.2% in my contract from 2013. this difference is VERY suspicious to me. If this was true, every swiss person would rush to get such a life insurance.
Hi everyone.
Please remember that you have usually a 2nd pillar that in case of death will be giveb to your wife/children. Please look up the condition in my case is only for a wife and I’m not married (but have a child withy partner). So don’t forget this money that usually will reduce the need of a death insurance.
On top of that you can do a Pillar3b risk death insurance which is a very transparent form: annual premium of around 180 chf, that you can take away from income for tax, thus recuperating ~30 bucks (pillar 3b). and around 200’000 chf that go to your loved one in case of death. I have the Generali compact prevista works very well
I am very cautious with insurances. I always insure one (group of)-risk with one contract. so i will be able to change my mind or my life without the hole insurance crap explodes in my face. and also its more transparent what you get when and how much you pay for it. Absolutely never mix saving with insurance…
Another important thing is check double insurance or no use insurance. if you work for a company in switzerland you should be insured quite well form the beginning. Death should be insured by your companies pension institute (you have to look how much and who can benefit. you won’t Work inability should be so expensive its not a good idea to insure it privately (if you can at all) thats why it is already insured by a social insurance called Invalidenversicherung (IV). normaly it comes on your salary form as percentage together with AHV/IV/EO. the sickness well also for that you might be already insured well enough by your company for the first couple of days, weeks or even months. also your treatment is covered by the compulsory health insurance (Krankenversicherungsgesetz KVG). also accident is covered if you work for a company via the Unfallversicherung (UVG) which should also be on the salary receipt.
If you look all that up you should find out where you really have a risk that is not yet covered and worth to cover. All in all i think you should only cover risks that are unlikely to happen to you and that would ruin you without insurance.
Ahh yes my biggest mistake financially so far was to buy a new car (coupe) and sell it 1.5 years later for half the price. Also it wasn’t my money but i borrowed it form my parents. took my a while to pay it back even i hadnt’t had that car anymore. now i drive a second hand car with frugal diesel engine :-{ more mustache
@Grog: those numbers look much better than the ones I have currently: I pay 350.-/year for a 150’000.- payout in the form of a pillar 3b with Helvetia. Looks like I need to shop around (starting with Generali).
To conclude my initial post, I sold (=cancelled) my life insurance. besides the non-capital-building costs, I lost roughly CHF 2500, that is a return of -25% over 4 years
The decision was based on
the extremely low return prospect of a 30 years illiquid investment
bundled insurances that were bundled with it at premiums that are not competitive on the market (= too high)
and a few more, minor aspects.
so, conclusing, dont invest in life insurance products!
Did the same last year (after 6 years…) ! In my case, the impulse came from the yearly reports… after I noticed that the expected return was lower and lower, I began to care about it and ran some math…
Better late than never !
I also made a terrible decision signing up to a similar scam. The details are too shameful to share, but I am in the process of cancelling the contract right now. How I wish I had known then what I know now!
Hi everyone, it’s my first post but I’ve been reading (and benefiting!) from all of your advice for a month or 2 now. Thank you all v much!
I made the same mistake as @nugget and signed up for a 3a + life insurance policy (like @Alex, the details are too shameful to share, but I was basically lied to by the advisor). Pleased I’m not alone in the ‘got scammed’ corner!
I stand to lose 10’000 of my 20’000 investment due to the surrender value.
How did you all go about getting out of the insurance? @nugget how did you reduce the loss from the estimated 6K to only 2.5K if you don’t mind my asking?
I made the same mistake. ( "Pillar 3a life insurance" stories )
Fortunately I did not waited too long before realizing that this insurance was far from optimal (10 months in the contract).
In this situation, it is important to not get trapped in the sunk cost fallacy. You have to compare what you’ll lose if you stop this insurance now, vs what you’ll lose if you keep the contract until maturity.
In my case it was lose 5k now vs lose 40k at maturity, so it was a no brainer! But it is still a very sour bullet to bite, especially when you receive the letter saying that the contract is now worthless.
Luckily I dodged that bullet, i got visited by a team of live insurance brokers for “after apprenticeship financial counsel” that was apparently sponsored by my employer (it was not but it sounded legit).
At that point I had already read the whole of MMM and had some investments going. It was kind of funny how the pitched how bad it would be if I had to live on halve of my salary in some wired edge case.
Couldn’t agree more with you on the sunk cost fallacy (thanks for the link); I did a quick calculation using Axa’s online customer portal and saw that if I continue paying the full 6768 CHF p/a for even just another 5 years, I would lose 22K instead of 10K.
How did you all go about getting out of the insurance? @nugget how did you reduce the loss from the estimated 6K to only 2.5K if you don’t mind my asking?
by some tricky finance math… i can’t find the documents anymore, so this is how the numbers are roughly made up:
originally (fall 2016) I asked for the buy-back value, and they stated some CHF 6xxx. of my 4 yearly premiums of CHF 3000 each (summing 12k) that i paid so far, I considered the difference to be my loss, hence the 6k. later I realised that the CHF 3000 yearly premium are made up of about 2.5 kCHF actual wealth contribution (=>10k after 4 years), and the remaining CHF 500 being insurances. So when they transferred CHF 7.5k some months later (which surprised me), i considered the CHF 2500 difference as my actual loss.
good point with the sunk cost! I made this calculation too, assuming average 5% with broad index ETFs i would have >200k instead of 110k at 65. as Julianek stated: no-brainer!
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Work inability should be so expensive its not a good idea to insure it privately (if you can at all) thats why it is already insured by a social insurance called Invalidenversicherung (IV). normaly it comes on your salary form as percentage together with AHV/IV/EO. the sickness well also for that you might be already insured well enough by your company for the first couple of days, weeks or even months. also your treatment is covered by the compulsory health insurance (Krankenversicherungsgesetz KVG). also accident is covered if you work for a company via the Unfallversicherung (UVG) which should also be on the salary receipt.
due to the surrender value.