Death benefit insurance: what does it do for me?

What is whole life insurance?

Whole life insurance is a type of risk insurance and is therefore a sub-form of life insurance (see our article: What is life insurance?). You can take it out either as part of pillar 3a or 3b. Death insurance ensures that dependants, such as spouses and cohabiting partners or children, are financially protected in the event of the death of the main breadwinner. This protection is achieved with death insurance by paying out a certain lump sum or periodic pensions to the persons designated by the insured person after their death.

What forms of payment are available?

There are two ways in which the death benefit can be paid out to the person you have designated:

• Lump-sum payment: The insurance company pays out a one-off sum to the surviving dependants. A lump sum can enable the surviving dependants to secure loans, for example.
• Pension: The surviving dependants receive smaller amounts spread over a certain period of time (often monthly). If there are regular payments, such as education costs, a pension can provide relief for the surviving dependants.

What types of insured capital are there?

In addition to the form of payment, you can also specify the amount of the sum to be insured. There are three subgroups:

• Constant capital: This variant is the most common. The sum insured remains unchanged for the entire term of the contract. This means that no adjustments can be made to the specific life situation. Even if your needs change, the insured sum remains the same. This is particularly suitable for couples who do not expect to be able to put aside solid savings and still want to be sure that their loved ones will receive a certain amount.
• Decreasing capital: The insured capital for the protection of surviving dependants is reduced slightly each year. At the same time, the premium payments are also reduced. Here you benefit if you have sufficient savings in the future, but in the meantime the accumulated assets are not yet sufficient to cover the costs in the event of death.
• Flexible capital: The sum insured can be adjusted to the policyholder’s needs from year to year. The premiums change accordingly.

When does death benefit insurance make sense?

Death insurance only makes sense if you leave behind people who are financially dependent on you in the event of your death. If you generate a large part of the income for your family, with or without children, death benefit insurance may be an option for you. This will enable your surviving dependants to maintain their previous standard of living after your death.

Professionally self-employed persons can guarantee their business partners’ solvency even after their death by taking out death insurance. Death benefit insurance also makes it possible to secure business loans.

Are you a homeowner? Death benefit insurance could allow your family to continue to pay the upkeep (mortgage, etc.) on your home so that you can continue to live in it.

Which death benefit insurance is right for me?

To determine the right form of payout for your situation, you need to consider what costs your surviving dependants will have to take care of. If they have to make monthly or annual payments, it makes sense to pay out the insurance in annuities. Lump sums are particularly suitable for securing loans. If a mortgage is in your name, you can use the lump-sum payment to ensure that your surviving dependants do not lose their home.

The time factor of your debt plays a role in the question of which type of insured capital is suitable for you. If the debt decreases over time (as with mortgage debt, for example), death benefit insurance with decreasing capital would be the obvious choice. If, on the other hand, you want to insure the recurring living expenses of your partner or children, constant capital makes more sense, as the costs to be covered always remain roughly the same.

Any savings must also be taken into account. If you expect to accumulate savings during the term of the insurance, diminishing capital is ideal for you. In this case, your need for insurance will decrease over time, as your survivors will be able to cover (part of) the costs with their savings. If your debts vary each year due to business loans, flexible capital is recommended. This will ensure that your insurance always matches your specific needs.

Pay attention to the following aspects

• Ask yourself whether you have people around you who are financially dependent on you.
• Bear in mind that you may be able to save tax if you take out death benefit insurance in pillar 3a (not 3b). More about the conditions here.
• Consider which form of payment (one-off lump-sum payment or annuity) is better suited to your individual case.
• Think about how high your expenses are and whether your debts will generally remain constant, decrease or be flexible. This will help you determine the right insurance capital for you.
• Get death insurance quotes from various insurance institutions. Compare them and decide on the offer that suits you best. Neutral insurance advice (independent of the providers) can help you get an overview.

Would you like to regulate in detail what happens to your assets after your death? Draw up your own will with the help of our instructions.

This might also interest you:

• Insured beyond death – whole life insurance
  How can I re-register a vehicle after a death?
• What is life insurance?
• Do I need a bank power of attorney in the event of death?