Life

Life insurance

What is life insurance?

A life insurance is a contract between an insurer and a policy holder. In exchange for paying a premium the policy holder’s beneficiaries will receive pay-out when the insured person dies. The amount that is payed out is agreed upon when applying for the policy.

There are mainly two different types of life insurance plans in the Netherlands::

• Term life insurance: only covers a certain time frame, such as 10, 20 or 30 years.
• Whole or permanent life insurance: builds cash value and always pays out. This can be considered a funeral or burial insurance.

On this site we only compare term life insurance policies.

Why should I take a term life insurance?

A life insurance can be important for anyone who has loved ones who depend on them financially.

Example 1

You are the breadwinner of a family of four. When you die, a life insurance can help replace your monthly income for a long time. This way your family members can keep the house and pay for the monthly expenses, such as:

• Mortgage costs
• Utility bills
• Groceries
• Children’s tuition fees

Example 2

Together with your business partner you co-signed loan for your business. When you die, your financial partner will end up paying for the loan all by him or herself. A term life insurance can cover the costs of the debt and be timed to end with the debt payments.

Example 3

You are planning to get a divorce or are already divorced. You or your partner may pay alimony to provide for your children. But when the person paying the alimony dies, financial problems may arise. Term life insurance:

• Can cover years of support payments (alimony)
• Can pay for your children’s study plans and/or student house rent

Types of term life insurance plans

There are three different term life insurance plans in The Netherlands that you can choose from. It is wise to get familiar with the different options. Consult a financial advisor if you have difficulties with choosing the right plan in your situation.

1. Stable cover

A term life insurance (in Dutch: gelijkblijvende overlijdensrisicoverzekering) has a stable cover that will always pay-out the same amount within the insured time-frame. The premium will also remain stable in most cases.

2. Linear decreasing cover

With a linear decreasing cover (lineair dalende dekking) the life insurance company pays out a gradually lower amount as every year passes. For every consecutive year the cover is reduced in equal steps  At the end of the insurance term the cover is 0.

3. Annuity-based cover

With an annuity-based cover (annuitair dalende dekking), the cover remains quite high in the first years of the insurance term. But as the term of the life insurance progresses, the covers starts to go down more and more. The speed at which this happens depends on the annuity percentage. Near the end of the insurance term the cover approaches 0.

What is term life insurance?

If someone in paid employment dies, their partner and children receive a survivor’s pension. This is not the case for independent entrepreneurs. If you die, your family is not automatically entitled to such a benefit. Do you want to make sure that your family will not get into financial trouble when you die? Then it is sensible to take out a term life insurance policy. With a term life insurance policy, your partner and children will receive a predetermined amount in the event of your death.

How does a term life insurance policy work?

You can insure yourself in various ways.

Level term life insurance

With a level term life insurance policy, you are insured for a fixed amount at a fixed premium for the entire term. That means it make no difference whether you die early on or only at the end of the term. The amount that your surviving dependents will receive will always remain the same.

Linear decreasing term life insurance

With a linear decreasing term life insurance, the amount that your surviving dependents will receive decreases each year by a fixed amount. The premium you pay also decreases. This form is especially interesting for older self-employed professionals: the older you get, the less your dependents’ need for benefits.

Annuity decreasing term life insurance

The amount that your dependents will receive also decreases with an annuity-based decreasing term life insurance policy. The amount decreases less rapidly at the beginning of the term than at the end. Your premium also decreases during the term. The annuity decreasing term life insurance is often taken out in combination with an annuity mortgage.

 

Read the policy conditions

What is covered and what is not depends on your insurance company. And on the conditions of your insurance policy. Always read the policy conditions carefully. You can ask an independent insurance advisor for advice.

Duration of term life insurance

You can choose between a temporary or a lifelong insurance.

Temporary insurance

This will be paid out if you die within the agreed term. For example, a term life insurance that is linked to a mortgage. Of course, a mortgage always has a certain term.

Lifetime insurance

An end date has not been determined for this type of insurance. The insurance will always pay out in the event of your death.

What does term life insurance cost?

The premium you have to pay depends on a number of factors. First of all, on the amount that your dependents would receive in the event of your death. But also on your age and health at the time you take out the insurance. It is possible that your situation changes during the term of the insurance to such an extent that you have to adjust the coverage upwards or downwards. Keep this in mind. Premiums for term life insurance are not tax deductible.

Inheritance tax

Do you pay the premium from your own equity? In that case, the payment to your surviving dependents is part of your inheritance and falls under the rules for inheritance tax (in Dutch). In some cases, the surviving dependents benefit is not part of your inheritance. This depends on who is listed on the policy as the policyholder and how your partnership is recorded. Premiums for term life insurance are not tax deductible. Your surviving dependents must pay inheritance tax on the benefit they receive from the term life insurance policy. Whether this is mandatory depends on the prenuptial agreement, but also on who is listed on the policy as the policyholder.

Alternative to term life insurance

You can also compensate for the loss of your income for your dependents by providing a financial buffer. You can do this by, for example, saving or investing. Of course, you can also combine a financial buffer with a term life insurance policy.