Serious financial difficulties can arise if the breadwinner of a young family passes away. Statutory pension entitlements, including survivor benefits, are often low if the deceased has not accumulated long insurance periods or has paid only modest contributions.

Widow’s and orphan’s pensions are rarely sufficient to support the family after the death of a parent. This is especially important if you have taken out a large loan, such as a mortgage. In such cases, a term life insurance policy ensures that your loved ones can repay the loan using the insurance benefit.

If the primary earner of a family passes away, it is not only a personal tragedy but often a financial disaster, for example, due to loans taken out during the family’s early years. Term life insurance can at least protect against financial ruin.

Essential for young homeowners

Term life insurance is particularly important for young families with one or more children who have built or purchased a home and have limited financial reserves. If both partners earn an income, a joint term life insurance policy can also be practical — it pays the full sum insured to the surviving partner upon the death of one partner. Compared to two separate policies, this can save about ten percent in premiums.

Loan protection through residual debt insurance

A special form of term life insurance is residual debt insurance. This covers exactly the outstanding loan amount in the event of the borrower’s death, ensuring that the remaining debt can be fully repaid by the insurance rather than leaving the survivors financially burdened.

Unlike whole life insurance, term life insurance only pays out if the policyholder dies during the term of the policy. For this reason, term life insurance is significantly cheaper than policies that include capital accumulation. From the very first premium payment, you have the certainty that your family is well protected in the worst-case scenario.

Price comparison is especially important

Coverage is largely identical across providers — if the insured person dies, the beneficiaries receive the agreed sum insured. If the policy ends while the insured is still alive, no benefits are paid.

Because benefits are generally the same, experts recommend focusing on affordable premiums when choosing term life insurance. For example, a 30-year-old non-smoker can secure a €150,000 coverage for less than €120 per year, which would be paid to their beneficiaries in the event of death.

By signing the insurance application, you generally grant the insurer the right to verify your stated health information with your general practitioner or other treating physicians.

If you have numerous or serious pre-existing conditions, the insurer may charge a risk premium or even reject the application. The reason is that the elevated mortality risk associated with serious health issues should not be borne by the pool of all policyholders.

Health information is reviewed and assessed

Applicants, the insurer, and, if applicable, the life insurance intermediary each receive a copy of the insurance application. The information about your health is evaluated by a company medical officer.

If no issues are identified, the insurance policy is issued and sent to the applicant. Once the policy is delivered, life insurance coverage legally begins.

Some insurance companies offer not only whole life policies but also term life insurance on joint lives. A joint life policy covers two or more people under a single contract. If one of the insured persons dies, the death benefit is paid to the surviving policyholder(s).

This can be especially useful for married couples, but also for business partners who run a company together, ensuring that shared financial obligations can be settled after the death of a partner without putting the surviving partner in financial difficulty.

Converting to a whole life insurance policy

Most life insurers grant their customers the right to convert a term life insurance policy into a whole life (capital) policy within the first ten years after signing. A new health assessment is generally not required for the conversion.

This option is useful for those who also want to financially prepare for retirement. At the end of the contract, the policyholder receives a maturity payout, which includes guaranteed interest and potentially additional surplus participation.

By converting to a whole life insurance policy, you can achieve two financial goals at once:

• Risk protection for your family

• A solid return on your savings