Term life insurance: Optimise financial security for your loved ones
07.05.25
3
Minutes
Katrin Straub
Managing Director at nextsure
The thought of your own death is unpleasant, but providing financial protection for your dependants can’t be put off. A term life insurance policy can play a crucial role here in closing financial gaps. Find out for whom this cover becomes essential, when it is needed and how to structure it optimally.
The topic in brief and concise terms
A term life insurance policy is particularly useful for primary earners, young families, borrowers and unmarried couples to close financial gaps in the event of death.
The sum insured should be three to five times the gross annual income, and the term should cover the financial dependence of the surviving dependants.
Contributions may be tax-deductible; the payout is exempt from income tax, but may still be subject to inheritance tax, with allowances and contractual arrangements (e.g. cross-ownership) being relevant.
Fundamental protection: understanding the key aspects of term life insurance
A term life insurance policy (TLI) provides financial protection in the event of death. It pays a pre-defined sum to the surviving dependants if the insured person dies during the policy term. This cover is particularly relevant for main earners and young families to bridge financial gaps. The sum insured should be three to five times gross annual income in order to cover ongoing costs and any loans. Many people underestimate that even small monthly premiums can enable a high level of cover. A careful needs analysis is the first step towards the right term life insurance. Understanding these basics makes it easier to decide on the right cover.
Target groups in focus: When is term life insurance particularly recommended?
The need for term life insurance depends greatly on your individual life situation. For young families with children, it is often essential to secure the family’s standard of living and the children’s education if one income is lost. Homebuyers with ongoing loans also benefit considerably, as the insurance benefit can be used to repay the loan and thus keep the family home. Unmarried couples should also consider cover, as in the event of a partner’s death they have no statutory entitlement to a widow’s or widower’s pension. Self-employed people and entrepreneurs can use term life insurance to safeguard the future of their business and provide for their family. For single people without financial obligations to others, term life insurance is usually not necessary. A careful assessment of your personal circumstances will reveal your individual needs.
Practical guide: determining the sum insured and policy term optimally
Correctly determining the sum assured and term is crucial for meaningful cover through term life insurance. The sum assured should be chosen so that it can replace the lost income for a period of at least three to five years. For mortgage loans, the sum should ideally be based on the remaining debt. The term should be set so that the financial dependency of the dependants is covered, for example until the children have completed their education or the mortgage has been repaid. A rule of thumb is to choose a term up to the age of 60. A guaranteed insurability option allows the sum assured to be adjusted following certain life events such as marriage or the birth of a child without a new medical examination. Careful calculation prevents underinsurance or overinsurance.
Here are some guidelines to help determine the sum assured:
Couples without children: twice the gross annual income plus any loans.
Couples with young children: five times the gross annual income plus loans and education costs.
Single parents: five times the gross annual income plus loans and education costs.
Borrowers: at least the amount of the outstanding loan balance.
These considerations lead to need-based cover.
Cost-benefit analysis: contributions and benefits analysed in detail
The premiums for term life insurance depend on several factors. These include the age at entry, health status, occupation, risky hobbies, the sum insured and the term. Younger and healthier people usually pay lower premiums. A term life insurance policy with cover of over €100,000 can start at around ten euros a month for a healthy person. In the event of death, the benefit, namely the payment of the agreed sum, far outweighs the cost and protects against existential financial hardship. Comparing different providers is advisable in order to find the best value for money. Deciding in favour of term life insurance is therefore an investment in the financial security of the surviving dependants.
Expert knowledge: Optimising tax aspects and contract drafting
Contributions to term life insurance can, under certain conditions, be claimed for tax purposes as other pension-related expenses. The maximum amount for employees is 1,900 euros, and for self-employed persons 2,800 euros per year. However, contributions to health and long-term care insurance often already use up this allowance. In the event of a claim, the insurance payout is generally exempt from income tax. However, inheritance tax may apply, with allowances varying according to the degree of relationship. For spouses, the allowance is 500,000 euros, for example. Thoughtful contract structuring, such as cross-insurance for couples, can help avoid inheritance tax. In this arrangement, each partner takes out a policy on the life of the other and is at the same time both policyholder and beneficiary. Advice on these details is recommended. Knowledge of these rules makes tax-optimised provision possible.
Special cases and alternatives: when other solutions might make more sense
Although term life insurance makes sense for many groups of people, there are situations in which it is not the first choice. For single people without dependants and without loans, taking out a policy is usually not necessary. Anyone primarily looking to save capital for retirement should consider other products such as a private pension insurance, as the RLV has no savings component and no payout is made when the contract ends without a death claim. Funeral expense insurance can be an alternative if the only concern is covering funeral costs, although the cover amounts are usually limited to around 15,000 euros. Check carefully whether term life insurance meets your specific needs or whether a combination or another product is better suited. Weighing up your personal goals will lead to the right decision.
When taking out term life insurance, there are several important points to bear in mind to ensure the best possible protection. Taking out cover early usually secures lower premiums, as the risk increases with age. Answer all health questions completely truthfully; false statements can lead to a refusal to pay in the event of a claim. Look for an included guaranteed insurability option so that you can later adjust the sum insured without a new health check, for example following the birth of a child or a salary increase of more than ten per cent. Our expert tip: compare not only prices, but also the terms and conditions, such as the arrangements for provisional cover or the options available if you run into payment difficulties. Thorough information in advance is essential. This is how you secure the best cover in the long term.
Important aspects when choosing a provider are:
Financial strength and reputation of the insurer.
Flexibility of the policy terms (e.g. cancellation options, deferral options).
Level of guaranteed benefits compared with possible profit-sharing bonuses.
Clarity and comprehensibility of the policy terms.
Quality of customer service and advice.
These points will help you find the right provider.
nextsure: Your partner for tailored term life insurance
Choosing the right term life insurance is an important decision with long-term implications. At nextsure, we understand that every life situation is unique and requires individual consideration. As a digital insurance portal, our mission is to offer you comprehensive and easy-to-understand insurance solutions. We support you in finding the cover that is right for you and provides optimal protection for your loved ones if the worst happens. With our expertise in the field of niche insurance and our focus on digital processes, we offer you transparent and needs-based advice. Trust our experience to provide a well-founded answer to the question “Is term life insurance worthwhile?” for your specific situation. We will accompany you on the path to your optimal cover.
More useful links
The German Insurance Association (GDV) offers current statistics and figures on the German life insurance industry for 2024.
On Statista you will find comprehensive data and facts on the topic of life insurance in Germany.
The Federal Statistical Office (Destatis) provides official data on deaths and life expectancy in Germany.
Detailed mortality tables, relevant for actuarial calculations, are also available from the Federal Statistical Office (Destatis).
The Deutsche Bundesbank regularly publishes reports on financial stability, which also shed light on the situation of insurance companies.
The Federal Ministry of Finance provides information on tax aspects of retirement provision and pension taxation, which may also be relevant for term life insurance.
Information on causes of death in Germany is also available from the Federal Statistical Office (Destatis).
FAQ
Is term life insurance also worthwhile for young people?
Yes, for young people in particular, term life insurance can make a lot of sense, especially if they are starting a family, taking out a mortgage or want to protect their partner. Premiums are often cheaper when you are young.
What role does the health assessment play when taking out the policy?
The health assessment is an important part of taking out the policy. Based on your health details, the insurer calculates your individual risk and sets the premium amount. Honest information is crucial for any later entitlement to benefits.
What is the difference between term life insurance and endowment life insurance?
Term life insurance serves solely to provide cover in the event of death. Whole life insurance combines death cover with a savings component for retirement planning, but is usually more expensive.
Is inheritance tax due on payout?
The payout amount may be subject to inheritance tax. However, there are allowances that depend on the degree of relationship (e.g. 500,000 euros for spouses). Careful contract drafting can minimise the tax burden.
What does "Nachversicherungsgarantie" mean?
A guaranteed insurability option allows you to increase the sum insured following certain life events (e.g. marriage, the birth of a child, a salary increase) without undergoing another medical examination.
How do I find the right sum insured?
The sum insured should cover financial obligations (loans, living expenses) and the needs of the dependants (e.g. the children's education). A common recommendation is three to five times the annual gross income.
