Fondsgebundene Lebensversicherung is an investment savings product that allows you to form significant capital before retirement and receive a lifetime additional pension or a one-time large payment.
In recent years, the classic Lebensversicherung has become less and less popular due to consistently low interest rates.
Unlike the classic Lebensversicherung, there is no guaranteed bet. By investing in funds, you can often get higher returns, but there are also risks.
Briefly about Fondsgebundene Lebensversicherung
In recent years, the classic Lebensversicherung has become less and less popular due to consistently low interest rates. Unlike her in Fondsgebundene Lebensversicherung no guaranteed rate. By investing in funds, you can often get higher returns, but there are also risks.
- Fondsgebundene Lebensversicherung combines stock investments and life insurance (Lebensversicherung).
- The potential profitability is higher than with classic life insurance, as are the risks.
- Three options for choosing payments - lifetime pension, one-time payment or a combination.
Advantages and disadvantages Fondsgebundene Lebensversicherung
- For a lump sum payment, 50% of profits are tax exempt if the conditions are met
- For a lifetime pension - only part of the pension will be subject to income tax, depending on the age of retirement
- The program participant himself chooses what amount or additional contributions to make.
- It is possible to rebalance the portfolio without paying income tax.
- You can suspend contributions by putting payments on hold or terminate the contract.
- Partial withdrawal (having children, buying a house, etc.)
- Lifetime pension or partial withdrawal upon retirement - your choice.
- Inheritance available.
- Contributions do not reduce the tax base.
- Risks, as in any investment.
- Increased commissions in the first 5 years. As a result, the program is not profitable for less than 10 years.
Comparison Fondsgebundene Lebensversicherung with independent investment
- There are tax benefits
- The risks are lower, the portfolio is assembled by professionals
- Withdrawals at any time
- Administrative commissions
- No tax benefits
- It is necessary to delve into and understand, the risks are higher
- Withdrawals at any time
- Lower service fees
How does work Fondsgebundene Lebensversicherung?
Funds are divided by risk into:
- Pension funds
- Mixed funds
- Equity funds
Pension funds
Pension funds created with the capital preservation requirements in mind. This means that the profitability is comparatively low. The main instrument is bonds and securities with a guaranteed low interest rate.
Many equity funds offer high potential returns. However, this also carries higher risks of losses in unfavorable market conditions. Therefore, we recommend using a combination of different types of funds to diversify risks.
This form of investment offers tax advantages that come into effect at the payout stage.
Conditions for receiving tax benefits
- Investment period is at least 12 years
- Payment not earlier than 62 years of age
In this case, contributors only have to pay tax on half of the profits at their tax rate.
In the case of recalculation of savings into a lifetime pension, part of the payments will be subject to income tax.
The later (the older you are at retirement) the conversion occurs, the less portion will be taxed.
For example, if you convert at age 63, only 20% of pension payments will be taxed. If you convert to age 67, then you will have to pay tax on 17% of pension savings.
Table of the taxable part of the pension depending on the retirement age:
- 58 years
- 59 years
- from 60 to 61
- 62 years
- 63 years
- 64 years
- from 65 to 66 years old
- 67 years
- 68 years
- from 69 to 70 years old
- 71 year
- from 72 to 73 years old
- 24%
- 23%
- 22%
- 21%
- 20%
- 19%
- 18%
- 17%
- 16%
- 15%
- 14%
- 13%
- 74 years
- 75 years
- from 76 to 77 years old
- from 78 to 79 years old
- 80 years
- from 81 to 82 years old
- from 83 to 84 years old
- from 85 to 87 years old
- from 88 to 91
- from 92 to 93 years old
- from 94 to 96 years old
- from 97 years
- 12%
- 11%
- 10%
- 9%
- 8%
- 7%
- 6%
- 5%
- 4%
- 3%
- 2%
- 1%
- 74 years
- 75 years
- from 76 to 77 years old
- from 78 to 79 years old
- 80 years
- from 81 to 82 years old
- from 83 to 84 years old
- from 85 to 87 years old
- from 88 to 91
- from 92 to 93 years old
- from 94 to 96 years old
- from 97 years
- 12%
- 11%
- 10%
- 9%
- 8%
- 7%
- 6%
- 5%
- 4%
- 3%
- 2%
- 1%
Example of calculating a lifetime pension Fondsgebundene Lebensversicherung
From Fondsgebundene Lebensversicherung You get € 1500 per month gross. You retired at age 64, so your taxable share of the pension is Fondsgebundene Lebensversicherung only 19% – 286 euro.
Example of calculating a lump sum payment
You retire at 62 years old, your contract with the insurance company is more than 12 years old. You receive 70 euros from private pension insurance, in which 40 euros were contributed. This means that your income is equal to 000 euros, only 30% of which should be taxed.
The amount received of 15 euros is subject to income tax.
Our recommendations
- Don't combine Fondsgebundene Lebensversicherung with regular life insurance Risikolebensversicherung. It is better to purchase these products separately. In the event of financial life problems, you will be able to suspend Fondsgebundene LV and not lose the protection of LV life insurance. In particular, in the case of a joint product, most often you do not know what part of your funds goes to the formation of savings and what part to life insurance.
- We recommend considering investment rates in index ETFs rather than managed equity funds. In this case, your fund administration costs will be lower.
- Before concluding a contract, decide which funds you would like to invest in.
- As you invest, watch how your fund develops. Contracts often allow funds to be changed free of charge. Typically, you are allowed to rebalance your portfolio once a year.
- In investing, profit is not guaranteed. Therefore, this should be an additional tool for creating a pension.
- Invest in different funds. At least 2-3 to spread the risks.
Pension investments - who needs them?
In this video, we'll talk about the pros and cons of retirement investing, and who it's suitable for.
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