Life insurance policies are often very complicated and offer policyholders a mix of ways to build wealth, pension benefits, and risk coverage to protect against things like death or sickness. But you can also get pure-risk life insurance and pure-endowment insurance.
Risk insurance pays out benefits if something unexpected happens, like the policyholder getting hurt on the job.
In the case of endowment insurance, on the other hand, benefits are paid out when the endowment date, which is set by the contract, comes around.
Because of this, endowment insurance policies are mostly used as a way to save money for retirement, which is why they are sometimes paid out as monthly annuities.
We usually make a difference between traditional life insurance and modern life insurance.
Traditional life insurance has a guaranteed rate of return for the length of the policy. For instance, policyholders might get 2.5% interest on their capital over a ten-year period. Due to the low-interest rates that are currently in place, however, these high-yielding life insurance policies are almost impossible to find (individual life insurance). In Switzerland, it’s more common to see policies with a guaranteed return of, say, 0.5% and the chance for customers to make money from possible investment gains.
There are still insurance plans in the group life business that offer guaranteed rates of return. The investment-type policy is a new alternative to the guaranteed-return policies that have become popular along with other new products. Instead of giving customers a guaranteed return on the money they put in, they let customers share in the profits from investments that do well.
Customers get the full benefit of these investment returns and depending on the product, their capital is guaranteed to be safe, which means they can’t lose the money they’ve invested. For example, these kinds of insurance policies are common in the German life insurance business.
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