Investment & Wealth
whole life insurance
unit-linked whole life insurance
Unit-linked endowment insurance: Smartly manage return opportunities and risks
Are you looking for a way to take advantage of the capital market’s return opportunities for your retirement provision while also integrating life insurance coverage? A unit-linked life insurance policy could be the answer. This article highlights opportunities, risks, and provides you with concrete recommendations for action.
The topic in brief and concise terms
Unit-linked endowment insurance policies combine the return opportunities of funds with death protection, but also involve market risks.
The cost structure (final, administrative, fund costs) significantly affects the net return and must be carefully examined. [2,__7_4]
Tax advantages are possible, especially for old contracts (before 2005) or when fulfilling the 12/62 rule for new contracts. [__2_3,__2_4]
Understanding the Basics of Unit-Linked Life Insurance
A unit-linked life insurance is a type of life insurance where your savings are invested in investment funds. In case of survival, it provides a payout that depends on the performance of the selected funds, while in the event of death, a guaranteed sum is provided to your beneficiaries. The choice of funds may vary by provider, with options often including equity funds, bond funds, or property funds. [1,__1_2] It is important to carefully examine the cost structure, as initial and management fees can reduce the return. [2,__7_4] A typical term is often twenty to thirty years. [__1_3] This type of investment thus combines the desire for returns with the need for security.
Analyse potential returns and risk profile
The unit-linked life insurance policy tempts with potentially higher returns than traditional policies because it participates in the development of the capital markets. Historically, investors with a long investment horizon of, for example, fifteen or thirty years, have often been able to benefit from positive market developments. However, there is no guaranteed interest on the fund portion, and as the policyholder, you bear the market risk. Losses up to the total loss of the capital invested in funds are possible in the worst-case scenario, if stock prices fall or funds are liquidated. Careful selection of funds and risk diversification are therefore crucial for investment success. In contrast, a traditional endowment policy invests more conservatively.
The cost structure is another important aspect. It typically consists of:
Initial and distribution costs: These are often incurred in the first five years.
Administration costs of the insurance: These are incurred annually for policy management.
Fund costs: Each fund incurs its own ongoing costs, often shown as the Total Expense Ratio (TER), for example, 0.2 percent of the fund volume.
Risk costs: Premiums for death protection.
These costs can significantly affect the net return. A careful look at the product information sheet is essential.
Consider tax aspects when concluding contracts and making payments
The tax treatment of a unit-linked endowment life insurance policy largely depends on the contract conclusion date. [__2_2,__2_3] For contracts concluded before 1 January 2005, the returns are generally tax-free if certain conditions are met. [__2_3,__2_5] These include a minimum term of twelve years and a payment of contributions over at least five years. [__2_3] For contracts from 2005 onwards, the returns are subject to the flat rate withholding tax or the personal income tax rate. [__2_3,__2_4] Under certain conditions, such as a term of at least twelve years and a payout from age 62 (for contracts concluded from 2012), only half of the returns are taxable (half-income rule). [__2_4,__2_5] The contributions themselves are usually not deductible as special expenses, unless they are certified Riester or Rürup contracts. [__2_2] More information on the calculation of life insurance tax can be found in our portal.
Contract options: review termination, sale, or premium exemption
If your personal circumstances change, there are several options for your unit-linked life insurance policy. Cancellation is possible at any time at the end of the insurance period, but it often leads to financial disadvantages. [__4_2] The surrender value is often lower than the premiums paid, especially in the early years, as acquisition and distribution costs are deducted. [__4_2,__4_3] An alternative can be the sale of the policy to specialized purchasing companies. [__4_3,__4_4] These may pay more than the pure surrender value, especially for older contracts with attractive conditions. [__4_4] Another option is premium exemption, where no further contributions are made, but the policy continues with reduced coverage and the capital accrued so far. [__4_3,__4_5] Carefully weigh the advantages and disadvantages of each option before making a decision.
Here is an overview of the main options:
Cancellation: Payment of the surrender value, often associated with losses. [__4_2]
Sale: Potentially higher proceeds than cancellation, especially for older contracts. [__4_4]
Premium exemption: No further contributions paid, policy continues in a reduced form. [__4_3]
Revocation: Possibly possible if the revocation instruction was flawed; can lead to a refund of all premiums plus interest. [__4_3,__5_2]
Expert review can provide clarity here.
Distinction from traditional capital life insurance
The main difference from the traditional whole life insurance lies in the type of capital investment and the associated risk-return profile. Classical policies primarily invest in fixed-interest securities and offer a guaranteed minimum return, leading to lower but safer earnings. The unit-linked variant invests in funds and does not provide a guaranteed return on the fund portion, but instead offers higher return opportunities with an increased level of risk. In unit-linked life insurance, the policyholder bears the full investment market risk. The traditional variant is suitable for security-oriented investors, while the unit-linked policy appeals to more risk-tolerant individuals who are willing to accept potential losses for higher return opportunities. Therefore, the choice strongly depends on your individual risk tolerance and financial goals.
Who is the unit-linked life insurance policy suitable for?
A unit-linked life insurance policy is particularly appealing to individuals who wish to plan for retirement over the long term, such as twenty years or more. [__1_3,__8_1] You should be prepared to accept the risk of market fluctuations for the potential of higher returns. [__1_2,__6_5] While basic knowledge of capital markets and funds is advantageous, it is not strictly necessary if good advice is available. It is important that this form of investment is not the sole pillar of retirement planning, but rather serves as an addition. [__1_3] Individuals who value guaranteed payouts and wish to avoid market fluctuations are often better advised with a traditional pension or life insurance. [__1_5] The inclusion of death benefit protection also makes them attractive to family providers. An individual analysis of your situation is crucial.
Conclusion and Next Steps for Personal Protection
The unit-linked whole life insurance offers an interesting combination of market return potential and protection for dependents. However, it requires careful examination of the costs, a realistic assessment of one's own risk tolerance, and a long-term perspective of at least fifteen to twenty years. The flexibility in fund selection and potential tax advantages can be attractive, but should not obscure the risks. A careful evaluation and comparison of different offers are essential before making a decision for or against this product. If you are unsure whether a unit-linked insurance fits your financial situation and goals, seeking professional advice is the next logical step.
Request an individual risk analysis now: Have your insurance situation reviewed free of charge and receive concrete optimisation suggestions.
More useful links
GDV provides statistics and figures on German life insurance from the year 2024.
Consumer Center Lower Saxony offers comprehensive information on unit-linked life insurance.
Federal Statistical Office (Destatis) publishes a press release with the 'Number of the Week' on life insurance.
Deutsche Bundesbank provides statistics on insurance companies.
Federal Ministry of Finance supplies information on the tax treatment of life insurance policies.
PwC has published a study on asset-liability management for insurance companies in 2024.
KPMG offers an article that highlights the difference between unit-linked life insurance and pure capital investment.
ifo Institute created a publication on the key topic of life insurance in Germany (published 2002).
FAQ
Für wen ist eine fondsgebundene Kapitallebensversicherung geeignet?
It is suitable for long-term oriented investors (at least 15-20 years) who are willing to bear capital market risks for higher return opportunities and at the same time desire death protection. [__1_3,__6_1]
Welche Rendite kann ich erwarten?
The return is not guaranteed and depends on the performance of the selected funds. It can be higher than with traditional life insurance but may also be negative. [__1_2,__3_2]
What happens in the event of death?
In the event of death, an agreed-upon insurance sum is usually paid to the beneficiaries.
Can I switch funds during the term?
Many providers offer one or more free or fee-based fund switches during the contract term. [1,__7_3]
Are my contributions tax-deductible?
Contributions to a unit-linked life insurance policy are generally not tax-deductible as special expenses unless they are certified Riester or Rürup contracts. [__2_2]
What is the surrender value?
The surrender value is the amount you receive from the insurer upon early termination of your policy. It corresponds to the current value of the fund units minus cancellation fees and costs. [__4_2]
