Pure risk life insurance on pillar 3a/3b? Not the usual stuff

Banks, Insurances & Third Pillar
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Hello, I’m new to the community but I’ve been lurking for a while and I’ve read all sort of horror stories on 3a life insurances already :smiley: I haven’t signed anything yet, but I couldn’t find an answer to my doubt.

In short: I’ve used Comparis to get a quote from a consultant, and he offered me a pure risk life insurance with Zurich which I can put either on pillar 3a or 3b, my choice. But this is NOT the usual “pillar 3a life insurance scam” thread, please read on.

I am a 40-yo non-smoker male with no particular risk factors. I am married and we recently got 2 kids, no mortgages. I am employed and covered by usual death/disability pension, but I want to increase this coverage. For now let’s just focus on pure risk life insurance: if I die before retirement age, a lump sum is paid to my survivors. What I need is a FIXED PREMIUM, FIXED PAYOUT insurance. Easy.

I am already covering the maximum ~7k CHF/year of pillar 3a investment in a VIAC account. I do not want to mix life insurance and investments. But when I got contacted by a consultant through Comparis, he gave me an interesting offer - and a reasoning on why it might make sense.

The proposal I got (I didn’t sign yet) is a pure risk life insurance with Zurich with fixed premium ~1600 CHF/year at 25 years term for 500k CHF coverage and exoneration from premium payment in case of inability to work > 360 days. It also has a partial coverage feature in case of contract termination: If I keep paying the premium for at least 7 years and then I stop paying but then I die, then Zurich still pays back something to my survivors, ranging from 10k CHF (year 7) to 220k CHF (24 years). This is on par with the Generali offer I find on safeside.life (which is a tad cheaper but does not offer partial coverage in case of contract termination). Anyway, most offers I found online have much lower but VARIABLE premiums, which I do not want.

The interesting part of this offer is indeed the possibility of paying the premiums on a Zurich 3a account. The idea is that I pay the premiums in that account, but I will never cash out those money at retirement, they will just go there and be invested and collected by the insurance, so it’s not “mixing insurance and investment together”, it’s still a pure risk life insurance, there is no investment at all, the only advantage for me is that I can deduct those premiums from taxes. If the 3a performs well, they will give me a super-minuscule discount on the premiums which I don’t even consider because it’s laughable. If the 3a performs bad… not sure, I haven’t found it mentioned anywhere on the contract, but I don’t think they can ask me to cover the negative difference because the premium is fixed. If I decide to rescind the policy before the end of the contract, I get no refund.

Interestingly, they offered me the option to do it on 3b instead of 3a, but the advisor recommended 3a, for the reasons in my post above (tax deduction). I admit I found this model strange, and the advisor of course must have his own interest, but his reasoning of why depositing on 3a is convenient compared to non-3a sounded convincing to me, it looks to me that in this particular case paying in 3a has only advantages.

The reasoning is the following: instead of investing ~7k CHF/yr on VIAC 3a and paying 1600 CHF/yr premium separately, I can pay ~5400 CHF/yr on VIAC, 1600 CHF/yr on Zurich 3a, and invest other 1600 CHF/yr on something else (e.g., an ETF) to keep my yearly expense constant. Advantages:

  1. I have 1600 CHF/year in investment which are not bound to pillar 3a withdrawal limitations. Better than having them as premiums, which I never cash out (because it’s pure risk life insurance).

  2. At retirement age, vested benefits 3a would be less. This means that I cash out less – and hence I pay less taxes on that cashout. With the advisor we estimated something like ~5k CHF difference saved on taxes at retirement.

  3. That ETF is likely to overperform the VIAC 3a portfolio.

The only serious advantage of non-3a life insurance in a situation like this, as far as I can see, is that with 3a you have zero control on the beneficiaries in case of your death: the money goes to your married partner and kids. Which might or not be 100% what you want depending on your situation.

Does it make sense? Thanks!

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That premium seems rather high to me. VIAC Life (not 3a and does not require using VIAC for 3a) offers a pure risk life insurance at a premium of CHF 274.35 a year at age 40 for a payout of CHF 300k in case of death. There are some downsides: The 300k is the maximum they offer and the premium will increase with age. I don’t think they cover premium payment in case of disability (they also offer a separate disability insurance, though) and if you cancel there won’t be any payout.

But still, the CHF 1600 a year doesn’t seem like a very good deal to me for a CHF 500k payout. Especially if you’re considering to cancel the life insurance significantly before the end of the 25 year term (e.g. because your nest egg will be big enough by then, in combination with pillars 1 and 2). If you’re fairly certain you want to keep it for the whole 25 year term, it’s a bit more difficult to compare as I don’t know how much higher the premiums will be at VIAC when you’re older.

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This is not pure risk insurance. Pure risk insurance means the money goes “poof” the moment you pay your premium, and you won’t ever recover any of it. In exchange, you will get a certain amount to mitigate the impact some risk would have on your life or the life of your dependents under certain conditions if and when the risk manifests itself. The premium, the covered amount and the conditions applying to it should be fixed and cristal clear.

I’m all for pure risk insurance when it makes sense, and it is possible that it does in your situation. In that case, using it as a 3a product and investing the rest on a regular brokerage account or using it as a 3b product and investing all of your 3a new contributions through a low fees 3a solution should be comparable (in that it should not be life altering). I may prefer contracting a pure risk policy as a 3a product because then, more of my wealth would be accessible without restraint.

I would suggest searching for a true pure risk product fitting your needs by reaching out to several providers and contracting the most cost effective option of those ones. I would want none of the “if the investments goes well then this happens” verbiage on such a policy. Pure risk policies should have nothing to do with “investments”, at all.

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Yes, that’s the big problem, all these offers have variable premiums, they get extremely expensive at late age, and worse still, they might decide to not re-insure you if your health condition deteriorates dramatically (e.g., after surviving a stroke). Fixed premium insurances are much more expensive for a reason, but the advantage is that you know in advance what you get into. Also, the longer the term, the more expensive of course, because the 55+ years are really the danger zone for insurers. I am getting the longest term I can (they typically don’t insure you after 65 years, also I assume in 25 years my kids will have completed their education).

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OK, but in this case the difference is so minimal it doesn’t even make sense to consider it. To put it in perspective: annual premium is CHF 1618.30 normally. With “dividends detractions” (don’t know the English translation, in Italian is “deduzione delle eccedenze”), i.e. the best scenario, it becomes CHF 1596.80. To be honest I’m not even sure it’s something connected to the performance of the 3a account or rather to the performance of Zurich as a group: the contract mentions various factors that might influence this excess: lowering of risk factors, interests, lower operating costs, etc. In any practical aspect, the premium “goes poof” the moment I pay it - minus the part about the partial coverage in case of termination, which I found nice anyway because if I decide, say, to stop paying after 10 years for personal reasons, then at least the money I spent so far still offers me a minimum of coverage until age 65.

Just to be clear, I’m not saying this is a good product, I’m just confused because when I started looking I was absolutely 100% sure I did nto want anything connected to pillar 3a/3b but now I’m not so sure anymore.

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Different colour of the same rainbow :joy:…pure risk as you describe is like 450-500 CHF per year max (300k chf pay out after 10years or end of contract if you « win » and are still alive :+1:t2::beers:)

Pure risk is pure risk. Any talk of mixing with investments = hang up. Totally aligned with @Wolverine on that!

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I signed for 20y with Generali (34-54y old).
CHF 200k in case of death. Pure risk insurance.
Premium is fixed at CHF ~276 and does not vary over time.
I took the option to be released of paying the premium in case of disability.

I signed applied online here :

And a comparator here :

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I’d probably add capital guarantee and tax savings - and you have the trifecta to sell overpriced insurance products.

Why though, over the 25-year term you’re mentioning, considering you’re 40 and already subscribed for children?

This is a forum about early financial independence. If you’ll have a positive savings rate over the next 10 years or so, shouldn’t you be able to cover the risk increasingly from savings, hence need a decreasing payout / lower insurance coverage in 10 or 15 years time (which should be available with lower premiums)?

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:100:: I tried to have this exact discussion with a colleague and until he realised this he couldn’t grasp why I would tell him he doesn’t need a 25y contract but a 10y since his goal was to live longer than 10y…the insurance was ONLY strictly needed during that growth period assuming he didn’t.

Why not instead pay yourself for insurance ? :beers:

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I don’t understand why you imply that I am mixing risk with investments. This is not something I am considering as an investment, it’s money that I’m happy to burn and even happier if I arrive at 65 and say “oh, I suppose I wasted that money”. We’re talking about life insurance here, I mean, when you get kids your life perspective changes :slight_smile: the price range you mention is for a non-comparable product (300k is not 500k and 10 years is not 25 years). I’d be happy to pay less if we can compare apples with apples.

I used your same comparator and didn’t find this, but the price seems attractive, even if it’s for 200k. I will get in touch with Generali for a quote, thanks!

No, this doesn’t work for me. We’re talking about a risk model, which is very personal and subject to different interpretations. In my case, I do not have the certainty that by investing those 1600 CHF every year I will arrive at early retirement (or anyway build a large enough nest egg) in 10 years. What If I miss the target and then getting life insurance at 50 becomes overly expensive? Again, I understand this is a forum for early financial independence, but when you get kids your life perspective change. I’m sure what works for me might be a stupid idea for you and viceversa, and we might both be right.

In a nutshell, because the risk in the short term might not be acceptable for someone to justify the long-term better strategy. What if I die in 2 years? Again, not something to be right or wrong about, just a matter of different perspectives.

Thanks anyway for the replies. I seem to understand that the right strategy here is to keep the variables fixed but shop around for better prices.

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Just to clarify: It’s not about investing these 1600 CHF elsewhere or not. This amount in additional savings willl (likely) only make a minor difference.

But I was assuming that - regardless of whether you take out that life insurance or not - you may/will have other savings.

By saving 1000 CHF (or 2000 CHF) a month, you will have accumulated a savings total of 240’000 (or 480’000) CHF after twenty years - even without receiving any interest or investment return.

:point_right: Does your family really require an additional 500’000 CHF payout from the insurance in 20 years - considering your children will have completed secondary education - and presumably also (almost?) completed tertiary education by then?

The richer you become (from saving & investing), the less loss of income / missing wealth needs to be replaced by an insurance in case of death. It’s especially true for high-saver individuals/households.

If you have a very low savings rate, have very little savings and plan to support your family / children mostly from current (same period) employment income in 20 years - then a constant payout makes more sense over time.

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Well, the risk is, what happens if I die in, say 2 years from now? I need coverage now. You might say, OK, then go for a lower term, say 10 years. But that is also a risk: I would not be saving as much as without coverage, and the risk is that at the end of the coverage I find myself in a situation where the risk is till there but extending the coverage becomes very expensive. It’s a tradeoff of risk basically. 1000-1500 CHF/year doesn’t break my bank and it’s a price I’m willing to pay for the peace of mind, so to speak.

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I amended my above post.

Not disputing that.

But I don’t (in my opinion) think you need a fixed payout / coverage over the entire term of the insurance term - if you have high savings rate. You can do with decreased coverage - and if I’m not mistaken, there are insurance products offering that. If anything, you should look at the sum of both.

Returning to the example above, let’s assume:

  • your two children are now 2 years old
  • you plan on financially supporting them until the age of 27, twenty-five years from now (2048)
  • you’re saving 2’000 a month
  • your current net worth is zero
  • interest rates are zero as well (not realistic, but we get to that)

  1. You die in a year (December 2024):
    Capital: 2’000 savings + 500’000 lump sum death benefit from insurance = 502’000 total capital
    502’000 / 2 children / 24 years remaining = 10’458 per year and and child

  2. You die in ten years (December 2033):
    Capital: 240’000 savings + 500’000 lump sum death benefit from insurance = 740’000 total capital
    740’000 / 2 children / 15 years remaining = 24’667 per year and and child

  3. You die in twenty years (December 2043):
    Capital: 480’000 savings + 500’000 lump sum death benefit from insurance = 740’000 total capital
    980’000 / 2 children / 5 years remaining = 98’000 per year and and child

:point_right: I’d argue that they‘ll lack funds if you die within the next 10 years - but if you die after 20 years, they’d be overfunded. You should rather „flatten that curve" - and could do with an insurance that has lower payouts, the longer you live.

And here’s the thing: The tail end of the insurance is the most expensive part. I played around with the safeside.life calculator - seems you can reduce your monthly premiums by about a third (33%) by shortening the insurance term from 25 to 18 years - in which case you‘d also save 7 years of paying premiums. Fully paying the premiums, this (18 years at 67% monthly premium vs. 25 years at 100%) would more than halve (!) the overall sum of your premiums/cost of insurance!

Admittedly, you could ask whether you’d still make 2’000 in monthly savings, if you retire early at, say, 55. But as a matter of fact, interest rates - and even more so equity investment returns - aren’t zero but much higher, especially over 15+ years.

Also keep in mind that interest (or returns) above the rate of inflation work in your favour, when saving and investing over longer periods of time.

Whereas a high rate of inflation works against a fixed payout of your insurance product: Is the life insurance payout indexed for inflation - if not, how much will your fixed payout be worth after 10, 15 or 20 years of moderately to slightly higher inflation?

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As per your title you are associating « pure risk life insurance with 3a/3b », so you are mixing insurance with investments (at least investment potential). It’s just not necessary is all I’m saying: you can have the piece of mind of life insurance (regardless of reason or duration) without putting it into an investment vehicle and reducing that potential tool.

Last comment and I won’t reply again: I have 2 kids so my priorites are also clear, this we can at least agree on :+1:t2:…but they will hopefully never need life insurance themselves or rely on me having any, since I aim to always have more assets than liabilities for all of us. If that should change, then yes I have more risk to not get life insurance later when I’m older and I am ok with that. It’s but another reason to save/invest sooner, will keeping liabilities low….not a reason for me to spend more on life insurance longer.

Overall, we seem to just have a different opinion on what « insurance » actually is and what’s it’s used for - sounds a bit like you are talking about using it as inheritance rather than insurance but it’s all good, I stop here.

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The comparator on moneyland.ch gives only 3a/3b insurances and 99% without a quote. What did I do wrong?

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I am also interested in product like this. Not aware of this name of the product. Just to rephrase and confirm, fixed premium, fixed term (20 years for example) and payout if and only if I die. Is it the correct understanding?

exactly what in my mind. :grinning:

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Yep this comparator is not very useful… It worked better few years ago.

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If it’s the most cost efficient way to procure the coverage you want, I say go for it. I’m wary of solutions that mix other things with the risk coverage because I’m expecting either that others would be able to offer cheaper solutions without that part (if it does procure a benefit to the insuree) or that it offloads part of the risk on the insuree, which is the opposite of the reason why I’m taking insurance when I do.

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Uhm, so you are suggesting a decreasing payout insurance? Interesting, didn’t think about it, they are usually tailored to repayment of mortgages, but you have a point in considering inflation on those 500k CHF (I also considered this, but I decided it would be balanced by inflation on the fixed premium). In other words, I assume that a fixed payout, fixed premium insurance actually behaves like a decreasing premium, decreasing payout insurance due to inflation. But a really decreasing payout insurance costs much less now. I have to think about it.

I agree in general, but this raises two questions. The first is what I wrote in the first post, basically: are we sure that 3a=bad if it’s only used as an account to pay the premiums? In other words, if it’s not a way to invest money, but only to deduct the premiums from taxable, then why not? The second question is: what would be the difference, in practice, between paying premiums in a 3b account or in a bank account of the insurer? At the end what does it change for me given that 3b accounts are basically unregulated? (again: only for pure risk insurance, if we’re looking at mixed/endowment insurance then 3b is where all the scam rage happens).

My same experience, I only got 3a/3b offers anyway, and all of them except Generali without a quote.

I agree in principle, but I start wondering whether it’s even possible to get a life insurance outside the 3a/3b paradigm nowadays.

I decided to get in touch with Generali for a quote. I wrote in the message specifically what I was looking for: 500k, fixed premium, 25 years, not 3a/3b. Guess what? They sent me by email an offer with a 3b plan.

I am puzzled.

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True in principle - that said, looking at the consumer price indices in Switzerland, inflation is low - and so are interest (there’s only been a 14.2% rise in CPI over the last 23.5 years - over half of that over the last 7 years).

Now, that doesn’t mean inflation or interest rates are going to stay as low as they have been - see for example the much higher inflation up to the early 1990s. But a fixed payout insurance won’t protect you against inflation - only overinsurance may do so. And that costs.

…to take a look into it, yes.

Especially if you are going to have a decent savings rate and plan to build wealth, yes. Though even if you don’t, even if your net worth in 20 years is the same as today (maybe adjusted for inflation), you probably will need lower insurance coverage - because the insurance payout has to support your family (children!) for a shorter period of time.

Also, you may leave some later years uninsured, if you could cover them from accumulated savings. As I mentioned above, when I played with the online calculator, 18 years seemed to more than halve your total costs of insurance (assuming you fully paid over the entire term - opting out will, as I understood you, substantially reduce the coverage).