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Why a 3a insurance policy is not a good idea
The financial industry offers you many options in pillar 3a: from traditional savings accounts to investment solutions right through to combo products with insurance coverage. The latter sound convenient at first glance, but are usually complex, inflexible, and expensive. Our takeaway: Hands off! You should strictly separate saving for retirement and insurance coverage. Do you already have a 3a insurance policy? We show you how to find out if getting out pays off for you.
THE MOST IMPORTANT POINTS AT A GLANCE:
3a insurance policies combine saving and risk protection. This often leads to high costs and inflexible contracts. Separate these two needs and look for the best offer for each.
3a insurance policies offer few advantages, but serious disadvantages: High (often hidden) fees, mandatory contributions, and lower return potential cost you a lot of money in the long run.
Do you already have a 3a insurance policy? Use our calculator to see whether canceling pays off.
Index
What is a 3a insurance policy anyway?
A 3a insurance policy combines a savings or investment part with risk insurance. If you become disabled, the insurance pays a pension or takes over your annual contributions. In the event of death, your beneficiaries receive the agreed capital.
Just like with conventional 3a offerings, insurance policies also come as pure account or investment solutions. The tax benefits of pillar 3a are the same for both models.
Typical features of a 3a insurance policy:
Combo product: Covers retirement savings and insurance protection in a single contract.
Fixed contract: You commit to paying in a fixed amount every year until retirement.
Exit hurdles: If you terminate the contract early, you often get back significantly less money than you paid in.
3a insurance policies offer few advantages…
The main argument for a 3a insurance policy is risk protection: In an emergency, you or your family are financially protected.
If you find financial topics challenging, the model offers further perks:
All-in-one: You only have one contract instead of several contracts.
Forced savings discipline: The annual payment obligation ensures you won’t forget to save.
Potential surpluses: Some 3a insurance policies entice you with profit-sharing when business is going well.
… BUT several serious disadvantages!
These few advantages are countered by significant drawbacks:
Intransparent and complex: Where and how much of your money flows is often hard to trace. Risk costs, administration, and fund fees are hidden deep within premiums and difficult to locate in your documents.
High costs drag down returns: Sales commissions (in the first few years), wrapper fees, risk premiums, guarantee costs, and expensive in-house funds eat up a large portion of your contributions. Particularly shameless providers load their funds with high front-end loads on top. You miss out on this money when building wealth (compound interest effect!).
Rigid contribution duty: With most contracts, you must pay in the full amount every year, regardless of your current life situation (e.g., during further education, a sabbatical, or unemployment). If you have no taxable income in a given year, you can't even deduct the payment from taxes, yet you will still have to pay tax on the money later upon payout.
Poor conditions on account solutions: With pure 3a savings accounts from insurance companies, the interest rate is often fixed for the entire duration. In a low-interest environment, you get stuck for years.
Losses upon cancellation: Because high closing and sales costs are charged right at the start, the so-called «surrender value» is extremely low in the first few years. Those who exit early or want to draw the money for home ownership often lose thousands of francs.
Higher taxes upon payout: The payout date is contractually set right when signing up for the 3a insurance policy. That is why the money usually becomes due exactly in the year of official retirement. Together with other capital withdrawals (e.g., from your pension fund), this leads to an unnecessarily high tax bill due to tax progression. With multiple 3a account or investment solutions, you could stagger withdrawals over several years and save taxes.
Do you already have a 3a insurance policy? Here is what you can do.
Don't panic, just take it step by step:
Check your insurance needs: Do you really need disability or death coverage? If so, take out a pure, affordable risk policy if needed. However, never cancel an existing policy rashly if your family relies on it.
Gather the facts: Check your documents or ask your provider. You need various details about your 3a insurance solution as well as the retirement funds used.
Check a premium waiver: Want to stop paying in fresh money without canceling at a loss? Ask about a «premium waiver». Your existing money stays put and continues to earn interest, while you don't have to add another cent. Caution: Insurance coverage usually drops drastically as a result.
Compare your options: How much money do you lose with a cancellation today – and how much ground can you recover through a cheaper, higher-yielding 3a investment solution until retirement? Don't worry, we're here to help and built a simple calculator for you (see below).
Make a rational decision: If you still have more than 10 years until retirement and don't strictly need the insurance protection, stepping out pays off very often despite the cancellation loss.
Does leaving your 3a insurance policy pay off?
Forget complicated Excel spreadsheets – simply use our calculator.
Here is the data you'll need:
Remaining term / End date: Stated in your contract. Usually, it ends at your official retirement age. Therefore, your current age is enough for us.
Account balance & Surrender value: You can find both in your customer portal under the current contract value overview or request it directly from your insurance company.
Premium & Savings portion: The premium is the total amount you transfer every year. The portion that actually lands in your savings account/fund (after deducting risk premiums and other costs) is the savings portion. Both can be found on your policy sheet.
Total costs per year: This includes product costs (TER) of the funds used (see factsheet), guarantee costs, as well as ongoing fees for administration, custody, and wrapper fees (see contract).
Return potential at findependent: Select the findependent investment solution that fits your risk profile. For a fair cost comparison, choose the investment solution closest to your previous pension fund.
Enter your details into the calculator below and find out whether a switch pays off for you.
3a insurance policy: is it worth getting out?
Details of your 3a policy
Your investment with findependent
This is how much you save by switching to findependent
Your savings at 65
How we calculate
- Expected return: we use long-term averages as the basis for future return expectations. For the insurer's pension fund and for findependent's investment solutions alike, we use the same gross return before costs.
- Net return: expected return minus total costs. At findependent, that's 0.29% per year; for the policy, the costs you entered (2% per year by default).
- Current 3a policy: starts with the current value of your insurance solution.
- findependent: starts with the surrender value you receive if you cancel today and can invest in a findependent 3a investment solution.
- In both cases the savings portion is added every year, first today and then every 12 months.
- The part of the premium for insurance cover and costs is not counted in either option. If you still need the cover, take it out separately after switching.
- If you've ticked the option “Invest the full premium with findependent”, the full premium is added every year at findependent instead of just the savings portion.
- The effects of any taxes, inflation, guarantees and profit participation of the insurer are not taken into account.
- Results are rounded to 100 francs.
- Projection without guarantee: past performance is no guarantee for the future.
Basically: Your savings potential is higher the higher your surrender value, the higher your savings portion, the younger you are, and the higher your chosen stock allocation.
Two real-life examples
These two scenarios show that a switch pays off for completely different life situations:
Example 1: Liam (27 years old)
3 years ago, Liam took out a 3a insurance policy with the maximum annual premium at the time of 7’056 francs. Due to high fees, however, only around 6’000 francs (savings portion) actually go into his retirement assets. His balance currently stands at 18’000 francs. At least this is invested in a pure stock investment solution and works for him, though total costs amount to at least 2% per year on closer inspection. He realized he doesn't actually need insurance coverage at all. If he pulls the plug now, he only gets half (surrender value) paid out.
Does a switch pay off for him?
Yes, absolutely! By switching to findependent, Liam saves a small fortune of around 284’000 francs until his retirement. Despite the immediate loss of 9’000 francs and the «small» percentage cost difference, the compound interest effect creates huge leverage over the next 38 years until his retirement.
Example 2: Kathrin (50 years old):
Kathrin has been paying into her 3a insurance solution for 30 years. A total of 100’000 francs (her current balance) has accumulated so far. Her pension fund has a balanced risk profile and invests up to 60% in equities. Until retirement, she is contractually obligated to pay another 4’000 francs (premium) into her pillar 3a every year, with 3’000 francs (savings portion) actually being invested. Her costs are exorbitant at a minimum of 2% per year on her assets.
Her life circumstances recently changed and her insurance needs decreased. If she switches now, however, she only gets 90’000 francs (her surrender value) paid out. She loses 10’000 francs in one go.
Does a switch pay off for her?
Yes, totally! Thanks to significantly lower costs, Kathrin recoups the initial setback after just a few years and saves around 47’500 francs by switching to findependent until her retirement.
Good to know: The calculations are based on continuing to invest the previous savings portion. If you don't need insurance coverage at all anymore, you can also pay in the full maximum 3a amount after an exit. Check the box «Invest full premium with findependent» in the calculator. That way, your cost advantage until retirement will be even bigger.
Conclusion
You should strictly separate retirement savings and insurance protection. A 3a insurance policy ties you to rigid contracts and often costs you a lot of yield due to high fees.
If you already have a 3a insurance solution, keep a cool head: Run your options through our calculator and switch to a flexible, transparent retirement solution as soon as it makes sense.
Not sure what the best option is in your situation?
We're happy to help you bring light into the dark. Book a free consultation call with us here.
