Optimising endowment life insurance: strategies for old policies and alternatives
15.05.25
7
Minutes
Katrin Straub
Managing Director at nextsure
Many Germans still have an endowment life insurance policy, but low interest rates raise questions about its profitability. Find out how to get the most out of your policy or find smart alternatives for your financial future. This guide offers you sound insights and practical recommendations for action.
The topic in brief and concise terms
Endowment life insurance policies do offer guarantees, but often only modest returns due to low interest rates; a careful review of the contract is essential.
Before cancelling, alternatives such as sale, paid-up policy status or, in particular, revocation (for contracts from 1994–2007) should be considered in order to minimise financial disadvantages.
The tax treatment of the payout depends on the contract date; modern alternatives such as term life insurance plus an ETF savings plan can be more flexible and deliver higher returns.
Whole life insurance policies: understanding the basics and assessing return potential
Endowment insurance combines a savings component with death cover. Part of your premiums goes towards building up capital, earning a guaranteed rate of interest. Currently, this guaranteed rate for new policies has been just one per cent since 1 January 2025. Many older policies often still have a higher guaranteed rate of up to four per cent. The sum assured is paid out either on death or when the policy matures. This structure once made it popular, but times are changing. Falling bonus allocations are negatively affecting the overall returns of many policies. A detailed analysis of your policy is therefore essential. This is how you can recognise the true potential of your policy.
Weighing up the pros and cons: Is your policy still up to date?
One advantage of endowment life insurance is the guaranteed benefit on death or survival to maturity. The guaranteed minimum interest rate offers a certain degree of planning certainty for part of the capital. However, returns are often low, due to low market interest rates. High premiums may be necessary to ensure adequate death cover. If the policy is cancelled, especially in the first few years of the contract, financial losses are often likely. Making the endowment life insurance paid-up also reduces death cover. Weigh these points carefully for your individual situation. The decision requires a clear view of the contract details.
Options for existing contracts: termination, sale or withdrawal?
Owners of an endowment life insurance policy have several options if the contract no longer seems optimal. Cancelling it leads to the payout of the surrender value. This is often lower than the contributions paid in, especially for young policies. Selling the policy on the secondary market can bring in a little more than the surrender value. Another option is premium suspension, in which no further contributions are paid. Revocation can be particularly interesting for contracts between 1994 and 2007. If the revocation notice was defective, revocation is often still possible even after years and may be financially more advantageous. A thorough review by experts is advisable here. Each option has specific financial and contractual consequences.
Our expert tip: Have revocation checked
Before cancelling your endowment life insurance policy, you should have the possibility of revocation checked. This applies in particular to contracts concluded between 1994 and 2007. Many insurers used defective revocation notices during this period. A successful revocation can mean that you receive back your premiums paid, plus interest, which is often significantly more than the pure surrender value. The North Rhine-Westphalia Consumer Advice Centre reports 30 to 40 per cent more money with a revocation compared with cancellation. An individual review by specialist solicitors or consumer protection organisations can provide clarity here and secure financial advantages.
Tax aspects of endowment life insurance: What applies upon payout and cancellation
The tax treatment of endowment life insurance policies depends on the contract conclusion date. For policies taken out before 1 January 2005, the returns are generally tax-free. The usual requirement is a term of at least twelve years and contribution payments over at least five years. For policies from 2005 onwards, the returns are subject to tax. Half of the returns are taxed at the personal income tax rate if the contract ran for at least twelve years and the payout takes place after the age of 60 (for policies from 2012 onwards, after the age of 62). Otherwise, the full return is subject to the flat-rate withholding tax of 25 per cent plus solidarity surcharge and, where applicable, church tax. A calculation of the tax burden is complex. These rules have a significant impact on the net payout. A precise understanding of the tax implications is important for financial planning.
Practical example: understanding surrender value and avoiding pitfalls
The surrender value is the amount you receive if you terminate your endowment life insurance policy early. It is calculated from the premiums paid plus interest, less various costs. These costs include acquisition and distribution costs, administration costs and often a surrender deduction. Especially in the first few years, the costs often exceed the returns generated. This means that the surrender value can be lower than the sum of the premiums paid. For example: in a policy with EUR 10,000 in premiums paid after five years, after deducting EUR 2,500 in costs, only EUR 7,500 might remain as the surrender value. Consumer advocates warn against cancelling too early because of the possibility of significant losses. An endowment life insurance policy should therefore not be cancelled without careful consideration. The exact composition of the surrender value can be found in the policy conditions or the annual statement.
Modern alternatives to endowment life insurance: providing for the future with greater flexibility and higher returns
In view of the disadvantages of traditional endowment life insurance policies, many people are looking for better retirement provision solutions. A popular alternative is the combination of term life insurance and a separate savings plan. Term life insurance provides cost-effective cover for dependants. The capital saved can then be invested flexibly and potentially with higher returns, for example in ETF savings plans or unit-linked insurance policies. These offer greater return potential, but also involve higher risks. The following points speak in favour of modern alternatives:
Separating risk cover and investment allows greater flexibility.
Contributions for risk cover are often lower than for endowment life insurance.
The investment can be tailored individually to your own risk tolerance.
Higher return potential through investments in equity markets is possible.
Cancelling or adjusting one part (e.g. the savings plan) does not affect the other part (risk cover).
The choice of the right alternative depends greatly on individual financial goals and risk appetite. Careful evaluation and advice are crucial here. This is how you can make your retirement provision and cover modern and suited to your needs.
Concrete expert tips can help you get the most out of your endowment life insurance policy or make the right decision about its future. Check your contract at least once a year using the annual statement. Pay attention to the guaranteed interest rate, profit participation and cost structure. If you are facing financial difficulties, making the policy paid-up is often better than an early cancellation with losses. Consider revoking older contracts with a potentially incorrect cancellation policy. As already mentioned, this can generate up to 40 per cent more return than surrendering the contract. If anything is unclear, always seek a second opinion, for example from consumer advice centres or specialist advisers. Our expert tip: carefully document all communication with your insurer. This can be invaluable if disputes or legal action arise later. Taking a proactive approach to your policy protects your financial interests.
Legal framework and recent rulings: What policyholders should know
The Insurance Contract Act (VVG) regulates the rights and obligations of insurers and policyholders. § 153 VVG, for example, stipulates that surpluses must be passed on to policyholders by at least half. Current court judgments can also have an impact on existing contracts. For example, in several rulings the Federal Court of Justice (BGH) has strengthened the rights of policyholders when cancelling life insurance policies, particularly in cases of incorrect cancellation instructions (e.g. BGH, ref. IV ZR 76/11). These rulings often concern contracts from the years 1994 to 2007. Our expert tip: Keep yourself regularly informed about relevant changes in legislation and landmark rulings. This can help you assess and enforce your claims more effectively. A combination with occupational disability insurance is also subject to these framework conditions. Knowledge of the legal situation is an important building block for well-informed decisions.
nextsure: Your partner for transparent and optimised provision
The complexity of endowment life insurance policies and the wide range of options can be overwhelming. As a digital insurance portal, our mission is to offer you tailored and easy-to-understand insurance solutions. We help you analyse your existing endowment life insurance policy and identify opportunities for optimisation. Our experts can help you develop the strategy that best suits your situation – whether that means adjusting your existing contract or switching to a modern retirement planning solution. We offer you a personalised risk analysis to review your insurance situation free of charge. This enables you to make informed decisions for a secure financial future. Make use of our expertise for your retirement planning.
Request a personalised risk analysis now: Have your insurance situation reviewed free of charge and receive concrete suggestions for optimisation.
More useful links
Consumer Advice Centre offers consumer advice on alternatives to cancelling life insurance policies.
Destatis provides statistical data on life insurance in a press release.
Bundesbank provides statistics on insurance companies.
German Pension Insurance provides information on the Riester pension.
German Pension Insurance explains the Rürup pension.
Federal Ministry of Finance provides information on the tax aspects of life insurance.
Consumer Advice Centre provides information on the right of perpetual objection for life and pension insurance policies.
FAQ
What is the difference between surrender value and cancellation?
The surrender value is the amount the insurer pays in the event of a normal cancellation, often after deducting high costs. A revocation is only possible if the instruction was incorrect and can lead to a repayment of all premiums plus interest, which is usually more advantageous.
Can I make my endowment life insurance paid-up?
Yes, a paid-up policy is generally possible. You then no longer pay premiums, but the sum insured and the later payout are reduced. Death cover may also decrease.
What is the current guaranteed interest rate for endowment life insurance policies?
For new contracts concluded since 1 January 2025, the statutory maximum technical interest rate (guaranteed interest rate) is one per cent.
When is it possible to cancel my endowment life insurance policy?
A revocation is often still possible even years later if the cancellation notice was incorrect when the contract was signed. This often affects contracts concluded between 1994 and 2007.
What costs are associated with an endowment life insurance policy?
Typical costs are initial and distribution costs (often charged in the first five years), ongoing administration costs and, where applicable, costs for risk protection. These can significantly reduce returns.
Is endowment life insurance still recommended for retirement planning?
Due to the low returns, it is usually no longer the first choice for new retirement provisions. There are more flexible and potentially higher-yielding alternatives.
