#40 Apparent security: the hidden costs of 3a savings policies

Pillar 3a life insurance policies

A Pillar 3a life insurance policy combines asset growth with risk insurance, usually in the event of death or invalidity. With these policies, a portion of the amount paid in is invested in a savings component, while the rest is used to finance the insurance component.

This approach sounds promising, especially for people who want to provide financial security for their family. However, the devil is in the details. Or rather, in the lack of transparency when the two come together.

Life insurance policies are long-term contracts. The policyholder agrees to pay fixed annual premiums over several decades, and an early exit is usually associated with significant costs. This makes the business financially attractive for the insurer. For this reason, insurance companies also pay their brokers high acquisition bonuses for 3a policies.

The main criticisms of 3a policies are their lack of flexibility and their high and opaque costs. The premiums for insurance cover and the administrative costs eat up a considerable portion of the return. In particular, there is a lack of transparency and comparability when it comes to administrative costs.

But what can you do if you want to get out of a 3a policy?

First of all, you should check your contract for clauses that allow you to adjust or terminate the contract free of charge or at a low cost. Find out about options for switching to a more flexible product or adjusting the conditions.

In some cases, early termination can even make sense despite high costs, in order to benefit from better investment opportunities in the long term. However, everyone has to calculate this for themselves.

Pillar 3a banking solutions

What about banking solutions in Pillar 3a? These offer clear advantages over life insurance: they are more flexible, more transparent and more cost-effective. And they are also available as a digital 3a app. Savers have full control over their deposits and can choose their investment strategy freely – whether it's in an interest-bearing account or in securities. In addition, the high costs for insurance protection, which reduce the return on policies and have a negative effect on compound interest, are eliminated. Furthermore, bank solutions are very flexible, as investors can usually decide each year whether and how much they want to pay into Pillar 3a.

So if you are primarily saving for retirement and also want to benefit from tax advantages, a bank solution such as True Wealth's Pillar 3a is clearly the better choice for you. If you want additional insurance, such as life insurance, it is advisable to take out this cover separately and independently of your retirement savings. This way you remain flexible, keep costs under control and can benefit from higher potential returns.

Has your insurance company ever offered you a Pillar 3a savings policy? And how did you react? Send me an email to share your experience.