Recently I have met quite often with the fact that people want to cancel life insurance and exchange it for better and cheaper. Their motivation is to pay less and save more efficiently than in insurance. If you stand before this step, be sure to read the following lines.
You must always pay the premium
When you take out insurance, you as a policyholder (payer) have committed to pay the insurance premiums for the insurance you have insured for the entire insurance period. If the insurance is canceled, the insurance company has the right to premium until the end of the insurance period, respectively. until the termination of insurance.
If the insurance does not expire immediately, then you have to pay the insurance premium for the entire period until the insurance policy lasts. If you decide not to pay, the insurance company will recover from you. If you cancel the insurance policy, the insurance company will deduct the unpaid insurance from the value of the insurance surrender value.
What do you get when you cancel your life insurance?
You do not receive any funds for insurance that does not include a savings (investment) component after cancellation. This applies to risky life insurance and individual accident insurance.
In the case of life-assurance life insurance (investment and capital insurance) at the end of the insurance or in the case of early termination of the insurance, the insured person will receive from the insurance company the redemption value of the insurance.
The redemption value of the insurance is almost always lower in the first years of insurance than the value of the money paid in the insurance premiums from the beginning of the insurance. The redemption value of the insurance also takes into account the penalties for early termination of insurance and is therefore initially lower than the capital value of insurance.
The insurance premiums paid, the insurance coverage fees, the insurance’s initial costs of insurance and the administrative fees were deducted from the premium paid. Insurance companies, with their policy on fees, apply a negative incentive not to disturb the insurance prematurely.
That is why it is always necessary to consider carefully the pluses and minuses of the cancellation. Adjusting insurance for your needs is sometimes a better solution than canceling. You should also read this article in which I am writing more information about canceling or keeping life insurance.
Think of the tax office
In case you withdraw more money from the insurance than you put it in, you have to pay a tax on the profits. It should be done for you directly by the insurance company and paying withholding tax as banks do.
Especially be careful when you cancel the insurance you have applied to reduce your tax base while it was possible. If you cancel such insurance before the age of 55 or 10 years of insurance (if you are 55 years old), then you are obliged to increase your tax base within 3 years by the amount previously reduced by the tax base.
I do not know how the tax office can check this for a normally employed person. Always follow the current tax laws and everything will be fine.