What is life insurance?

What is life insurance?

Protection in the event of death and disability, development of sustainable old-age provision

Life insurance (Pillar 3a/3b) insures against risks such as death and disability. However, it is also used to build up capital and for private old-age provision. Therefore, a distinction is made between term life insurance and capital-forming products.

When is life helpful insurance?

Protection in the event of death and disability

If someone dies or becomes disabled as a result of an accident or illness, there is often a serious loss of income. These can only be partially borne by the state and occupational pension schemes. Life insurance is a useful supplement in these cases. It can close the financial gaps that have arisen by paying out an agreed sum insured.

Provision for old age

Anyone who wants to continue their usual lifestyle after reaching AHV age is usually dependent on a private pension solution. Savings life insurance (also known as endowment insurance or mixed life insurance) offers a simple way of putting money aside for old age on the basis of Pillar 3a. With it, you can build up your old-age provision in the long term and avoid a pension gap. 

reduce taxes

Life insurance is a clever way of saving taxes with the Swiss pension system. In this way, payments into pillar 3a can be deducted from taxable income. See the section below for more information.

How do I save taxes with the 3rd pillar?

If you take out 3a life insurance, you can look forward to a lower tax bill under certain conditions. However, life insurance also entails tax obligations. Here you can find out how you are guaranteed to reduce taxes and what you need to consider when taxing your life insurance policy correctly.

Save taxes – that’s how it works

You can save taxes in a targeted manner with a life insurance policy, above all via the statutory provisions of Pillar 3a. The pension contributions (up to CHF 6,883 for employees and up to CHF 34,416 for the self-employed per year) can be deducted from taxable income. This reduces the annual tax burden. 

Correct declaration in the tax return

Here’s how you need to declare your life insurance on your tax return to benefit from the tax deduction:

Pillar 3a life insurance

Periodic premium payments or deposits can be declared under the heading “Contributions to recognized forms of tied private provision ( Pillar 3a )”. The maximum value here is CHF 6,883 for private individuals and  CHF 34,416 per year for the self-employed.

Life insurance pillar 3b

These payments can be recorded in the tax return under the heading “Insurance premiums and interest on savings capital”. There are also maximum permissible deductions, which differ depending on the individual situation. These are based on payments made into the 2nd pillar (pension fund or occupational pension scheme) or into pillar 3a. 

It is important to note that health insurance premiums can also be entered in this section. If the maximum deduction has already been reached with the health insurance premiums, no further deductions can be claimed via pillar 3b. 

tax liability

In Switzerland, life insurance is subject to wealth tax under the provisions of Pillar 3b. Anyone who has taken out life insurance 3b must therefore state this in their tax return. We have summarized the most important provisions relating to the tax liability of life insurance for you. 

By Williumson

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