Life insurance is a simple and quick way to lose some of your money. There are hidden charges to blame, which you may not know about. Do you also belong to people who invest through life insurance?
How much can you save through life insurance?
It can be a lot and it can be very much. In the model example I write below, it’s a scary number.
Despite this, a huge number of Slovaks are saving through life insurance. Most of them have never dealt with the amount of money they get if they choose a life insurance policy instead of the most appropriate product to save.
In this article, I will not evaluate life insurance in terms of insurance risk coverage. It is precisely the purpose for which insurance is an appropriate tool. Insurance coverage is a separate article in the future.
But what life insurance is no longer suitable is saving and investing. Why? There are hidden fees for this.
I will give a concrete example of “investing” through the life insurance of one of the largest insurance companies in the Slovak market. It is a product that is no longer sold, but there is a good chance that you will find it with your friends and maybe with you at home.
It is neither the cheapest nor the most expensive. This is not the problem of an unnamed insurance company. You will find similar products in other insurance companies and in some of them even more expensive. The problem is the way of selling life insurance insurance. This product really is not ideal for saving.
An overview of the charges you will encounter in life insurance
In the example, I will count on a payment of € 50 a month, a period of 30 years, and the fact that this policy was only set up for “saving” without insurance. This is a model example of a particular investment life insurance product. You can find these charges there:
- Initial costs – € 1,200, which is 200% of the annual payment. This is the fee you pay because you have taken out insurance. If I simplify it, all the money you pay for the first 2 years goes to this fee only (the insurance company will block your money and you will download it from the insurance account). This fee is the answer to the redemption value of insurance after two years of investment is € 0.
- Entry Fee – This is paid when investing in mutual funds even if you invest through life insurance. You will not find this fee in this fee schedule. However, you do not invest for free. You pay an exit fee that is defined in the scale as the difference between the purchase and sale price (at the time of sale of the shares). The difference is 4%. If you pay 4% entry fee, then it is better than paying 4% exit fee that you already pay from a higher amount (if you’re lucky enough to withdraw more than you put into it, which is a very long time is possible. If this is an entry fee, you would pay € 720. This will be significantly more at the exit rate (the difference between the purchase and selling price) and depends on the life squeeze value at the end of the insurance period. In the best case,
- Monthly Administration Fee – It is “only” € 1.70 a month, which will do up to € 612 in 30 years. You can find it in the tariff as an administrative fee and it is similar to the account management fee, at least I understand it. For me, this means paying for something that is most useless and especially if I know it can be done without it … but outside of life insurance.
- Fund management fee (secondary) – This fee looks very inconspicuous. In the past, it was 0.7 to 1.5% pa of the account value. Today, I was looking at their website for a current tariff and I noticed that the fees were reduced (they are still huge) and are between 0.1% pa and 1.22% pa according to the fund type. It is a charge for nothing, because the fund management is managed by the management company that manages the mutual fund. If you invest through life insurance, you pay it completely unnecessarily and you pay really much. I did not make an exact calculation even though I really like accurate calculations myself. It is very complicated with the IE due to the non-transparent fee structure and some changes in the life insurance policy. Either way, everyone knows that it is a lot and the exact number will not reduce the fee. The higher the account value, the higher the fee you pay. For a model example (investing € 50 per month, 30 years, undercut, 1% per annum), this fee is between € 4,000 and € 5,000 for the entire period.
Warning! Some of these fees may also be changed by the insurance company during the term of the contract. It can reduce what he did in the past, for example. Metlife in a secondary fund management fee and can also increase it, as some insurance companies have done, for example. an administrative fee for maintaining an insurance account.
How do you know what fees you pay in your own policy and may not know about them?
You have several options:
- From the Fee Schedule – Either you have it in the contract or you download it on the web. These documents are relatively difficult to find in some insurance companies. Some of them are complicated that not only an ordinary person, but also a financial intermediary has a problem with them. It’s not a nice read. Nearly every insurance company is relatively high.
- From the insurance account statement – If you invest through the life insurance policy and the insurance company sends you a yearly statement of the current status, take it to your hands and study it carefully. You will find items such as the current value of insurance and the surrender value of insurance. The redemption value is what you actually choose from insurance. Do not be surprised if you have a redemption value of € 0 after 2 years. It’s normal in fuses. The difference between what you have paid and what the redemption value is. This is always the case, even if you are just saving in life insurance and you are almost uninsured there.
- From an insurance intermediary or from an insurance company – You can reach the person who has given you insurance and ask for all the fees you have in the insurance. You can also apply to the insurance company and it should help you find out what you are actually paying for in the insurance.
It is irrelevant whether or not you will work out the list of fees yourself or someone will help you. Most people quickly find that looking at an insurance or tariff statement is that life insurance is not a suitable investment product because of the crazy high fees.
Perhaps you already have that feeling and therefore, in your own interest, you can see how much you pay with your insurance policy, and if the situation is not satisfactory, you can find more efficient way to make regular investments.