Life insurance – quo vadis?
The older ones will remember, twenty or thirty years ago, it was self-evident to complete a life insurance for life insurance for old-age provision. Usually one decided to take this step, as soon as one had the first, well-paid job after the completion of education or study. Then you paid contributions to life insurance for decades, trusting that this investment will be profitable. At the end of the contract, one could look forward to a nice payout, which, in addition to the state-guaranteed interest, also included stately surplus shares. Of course, the whole thing was tax free – because if a life insurance was held for at least twelve years, the income was exempt from the tax.
You can only dream of it today. On the one hand, the tax privileges enjoyed by life insurances were at least partly abolished. In addition, the guarantee rate has been steadily reduced – today one has to be satisfied with new contracts with a meager 1.75 percent. These two changes alone are sufficient to make capital-building life insurances much more unattractive. But much more serious is the fact that life insurers are currently hardly able to generate the guaranteed guarantee interest rates. In the case of old contracts concluded in the 1990s, this is still some 4 percent. In fact, it is not surprising that life insurance companies have great problems in achieving these returns. Finally, the international capital markets have been in a pronounced low-interest phase for quite some time, and life insurers are obliged to make a large part of their investments in secure state securities. More about how to start a binary options business.
Are life insurance still safe?
A large German boulevard newspaper reported last week that the first life insurers wanted to force their existing customers to switch their contracts with high guarantee rates into low-yielding policies. The denial of the German Insurance Association (GDV) immediately followed by announcing that German life insurance would still be safe, even if the low level of interest rates on the capital markets would create problems.
Among other things, reference was made to an investigation by BaFin, the financial supervisory authority, which confirms that German life insurers can meet their commitments even if the low interest rate remains a few years. The Federal Government is also observing the situation continuously, but does not yet see any need for action. Nevertheless, the German Bundestag has passed a bill which strengthens the equity base of the life insurers by allocating a small portion of valuation reserves.
This means, however, that the insured person receives less surplus shares. In this context, one can also recall the Protektor Lebensversicherungs-AG. This company was founded after the bursting of the Internet bubble and the resulting distortions in the capital markets in 2002 and is intended to serve as a hedge fund for life insurers. Until now, it had only had to operate once in this way after the failure of Mannheimer Versicherung. Since 2004, the legislature has mandated this insurance for life insurers. As a person affected, who holds old contracts, one can draw some consolation from the statements of GDV and the existence of Protektor AG.
Nevertheless, the situation of German life insurers should be followed critically. One should not forget that in the worst case, the emergency brake can be pulled with a termination or sale of the policy. A (temporary) exemption of contributions can also be a sensible measure, since the insurance cover is retained and the option of continuing the contract is left open.