The main types of life insurance in Switzerland

Swiss life insurance falls into two primary categories. Pure risk insurance pays a lump sum to your beneficiaries if you die within the covered period and nothing if you survive it. It is pure protection with no investment component and has relatively low premiums for the cover it provides. Savings and insurance products combine a death benefit with an investment or savings element, typically at significantly higher total cost for the coverage provided.

When life insurance actually makes sense

Pure risk life insurance makes financial sense in specific circumstances: you have dependents who rely on your income, you have significant debts that would burden your estate, or your Pillar 2 death benefit is insufficient to protect your family's financial position. The calculation is straightforward: how much capital would your dependents need to maintain their standard of living if your income disappeared, minus what they would receive from AHV survivor benefits and Pillar 2 death benefits. Pure risk insurance fills that gap at the lowest cost.

The Pillar 3b insurance product problem

Pillar 3b insurance policies are frequently presented to immigrants by Swiss bank advisors as an alternative or supplement to Pillar 3a. The critical distinction is that Pillar 3a contributions are directly deductible from cantonal and federal taxable income while Pillar 3b contributions are generally not deductible. A standard Pillar 3b insurance product charges management fees, administration fees, and insurance risk premiums that together consume a significant portion of the accumulated value. After 10 years, many policyholders find their total accumulated balance is less than their total contributions.

What to do if you already hold these products

If you hold a Pillar 3b insurance product and are uncertain whether it is working in your interest, request a full policy illustration from the insurer showing total premiums paid to date, current surrender value, projected value at policy end, and total fees charged to date. Compare the surrender value to what your premiums would have generated in a Pillar 3a investment account with VIAC over the same period. The comparison is usually instructive.