Our Insights

About personal finance, investments and markets.
October 31, 2016

Life insurance products in Germany

Another article that applies only to expats living in Germany looking to understand the investment landscape here. Life insurance products (Lebensversicherung) are extremely popular in Germany but they are quite different from your typical life insurance product available in the US or UK. We will analyze here the German life insurance products and see whether they actually represent a good deal.

Life insurance can mean something rather different in Germany

Life insurance makes sense for those with a family and/or mortgage, as it will provide the lump sum in the event of an insured person’s death by pratically any cause.  This insurance is inexpensive and the cost is based on the age of the insured at the start of the insurance, the insurance sum itself, the insurance term and the medical history and smoker status of the insured person.

In Germany, this type of insurance is called Risikolebensversicherung. However, when Germans talk about Lebensversicherung, in most cases they refer to a different product, more precisely called Kapitallebensversicherung. A Risikolebensversicherung is a simple insurance against the risk of death, while the Kapitallebensversicherung combines this with a capital savings plan, which is paid out to the policy holder at a given date, typically the statutory retirement age.

While a Risikolebensversicherung makes sense for most people, a Kapitallebensversicherung is a very inefficient savings product as we will show.

Costs, costs, costs

There is one key problem of life insurance products as a savings product: costs typically eat up more than half of the returns. According to various studies, life insurance products (Kapitallebensversicherung) cost up to 4% p.a. With equity markets having delivered annualized returns somewhere around 7-8% over the last 20+ years, it is quite obvious who benefits most from selling these products. Hint: it is not the customer.

There are better ways to systematically build wealth and we recommend low-cost index funds (ETFs) which typically cost less than 0,25% p.a.

If you would like to schedule a call to discuss your goals and your portfolio, please give us a ring at +49 89 89 89 95 05 or send us an email. We’d be more than happy to speak with you.

Please read our Terms of Use.