How Much Life Insurance Do I Need?

by James Austin

Insurance… something nobody likes to pay for until the day comes that it’s needed… and no insurance is needed more than life insurance.

In Switzerland, beyond basic state cover, employees are insured for a certain amount of life and disability insurance through their company (2nd pillar) pension schemes. However, this differs widely from company to company, and most people have no idea how much they are covered for, what the terms of payouts are, whether their spouse qualifies to receive any money, and whether this would be enough to support their loved ones in their time of emotional and financial need.

How much life insurance do I need?

· How much will be needed at death to meet immediate obligations?(Mortgage repayments, debts, leases, education costs, medical bills, funeral costs)

· How much future income is needed to sustain the household (New/additional care costs, normal monthly costs, ongoing repayments)

· If the worst happened, where would my partner and family go? (How would location, and family support, affect the amount of ongoing income required?)

What type of life insurance do I need?

· ‘Level Term’ — the amount of insurance pay-out remains the same over the term of the insurance.

· ‘Decreasing Term’ — the amount of insurance pay-out decreases on an annual basis over the term of the insurance, to reflect the decreasing risk. Suitable to cover mortgage repayments, education costs and children’s care costs that will diminish over time.

· ‘Whole of Life’ — Instead of the insurance cover being set for a length of time, this option covers you for the whole of your life. It guarantees to pay-out when you eventually die, however for this same reason it is also more expensive than other options.

· ‘Single Life’ or ‘Joint Life’ — An individual is insured with a ‘Single Life’ policy, a couple can be insured with a ‘Joint Life’ policy, that can pay-out on the first or the second death.

· Swiss or International — If you permanently move countries your domestic life insurance will generally stop coverage. If you move countries often, to avoid ever-increasing insurance premiums and for peace of mind it is advisable to set up a specialist international life insurance that covers you no matter where you move.

Example calculation

John is married to Susan. They have one child aged 3, and own one house with an outstanding mortgage.

John and Susan decide that if the worst were to happen to either of them, the surviving partner would remain in Switzerland, and their child would remain in international school. Accounting for the surviving partner’s income, they agree that Decreasing Term cover for 10 years, decreasing by CHF 60,000 per year, would be suitable to cover existing outgoings and new additional care costs, until such time that their child was more independent and the care costs diminished;

Current outgoings = CHF 3,000/month

Additional care costs = CHF 2,000/month

New outgoings = CHF 5,000/month

CHF 5,000/month x 12 months = 60,000/year x 10 Years = CHF 600,000

Now you know how much life insurance you need, compare it to the life insurance you already have in place. This can include the 1st pillar, 2nd pillar, and 3rd pillar pensions. If you have a gap in your cover, seek qualified independent advice. Equally make sure you are not over-covered, to avoid paying unnecessary fees.

At Imperial Wealth Planning we are experienced in helping Expats and Swiss nationals get the right insurance cover. Being independent, we have access to the major Swiss insurers, as well as international life insurance specialists.For more information, or for a free personal consultation, contact us today to find out more.