Dec 21, 2021.
If the main wage earner in your family dies, it’s not just an emotional burden you have to cope with, but a financial burden as well. In the event of a death due to accident, the mandatory benefits are generally sufficient. But things look different in the case of an illness. Find out how well your family is covered in case of emergency and what else you can do.
Suddenly, one person is solely responsible for the family’s income, children and household. This problem is especially acute if the family’s main breadwinner dies. A death in the family raises many critical questions:
- Where does the income come from now to cover fixed costs?
- Can one person alone pay the rent or the mortgage?
- Who will take care of the children if the surviving parent has to go back to work?
- How will we be able to continue saving for the children’s education?
- Does the children’s share of the inheritance have to be paid out to them?
Benefits paid by compulsory insurance
If a married person dies, their spouse is entitled to certain benefits under compulsory insurance.
- Survivors receive survivors’ benefits from the AHV. These include pensions for widows, widowers and orphans. These benefits are intended to prevent the family from having financial difficulties. The amount of these benefits is determined by the deceased person’s insured income.
- If the deceased was covered by accident insurance, a pension will also be paid if death was due to an accident. Employers are required to insure their employees against accidents. Self-employed persons are responsible for insuring this risk themselves.
- A person’s pension fund will also pay a pension if death was due to illness.
The total of these benefits may not exceed 90% of the deceased person’s last salary. Otherwise, the deceased person is considered to have been overinsured, and the benefits will be reduced.
Survivor’s pension in detail
Widow’s and widower’s pension (or spouse’s pension): For widow’s and widower’s pensions in the state and occupational pension schemes, couples living in a registered relationship are treated as married couples. A surviving spouse is entitled to a pension if the following criteria apply:
- The survivor is responsible for supporting a child.
- The survivor is more than 45 years old.
- The survivor was married to the deceased for at least 5 years.
Entitlement to the widow’s or widower’s pension ends if the person remarries or dies.
If these criteria do not apply, the survivor will receive a lump-sum settlement equivalent to three annual pensions.
Orphan’s pension: Children of the deceased person are entitled to an orphan’s pension if they are younger than 18 or still in formal education. The marital status of the parents does not play a role here. An orphan’s pension is no longer paid once a child reaches the age of 25.
Good to know: If you voluntarily buy into a pension fund, you should check who will be entitled to this capital if you die. A number of pension funds do not pay it out to the surviving dependents. Check the pension fund regulations before buying into the fund.
Differences in pension cover: death due to accident or illness
Death due to accident: Cover under compulsory insurance is better if death is the result of an accident rather than illness. This is also the case with insurance covering incapacity to work. The reason for this is simple. About 80% of all deaths are due to illness, while 20% are caused by accidents. Therefore, the probability that death will occur due to an illness and the associated risk costs for an insurer are a lot higher. Here’s an example:
If a person dies in an accident, his or her spouse and children receive benefits totalling a maximum of 90% of the deceased person’s last salary. These benefits comprise the following:
The spouse’s pension from pillar 1 is 80% of the disability or retirement pension that the deceased person would have received. The spouse’s pension from accident insurance is 40% of the deceased person’s insured salary.
The orphan’s pension is 40% of the disability or retirement pension, and accident insurance pays 25% of the insured salary per orphan and 15% per half-orphan.
The maximum insured annual salary for accident insurance purposes is CHF 148,200. People who earn more than that must cover the difference with supplementary insurance.
Death due to illness: In this case, the family of the deceased person receives only about 60% of the deceased person’s previous salary. The gap is therefore larger than if death had resulted by accident. The benefits in this case comprise the following:
The spouse’s pension from pillar 1 is 80% of the disability or retirement pension that the deceased person would have received. From pillar 2, the surviving spouse receives only 60% of the disability or retirement pension the deceased person would have otherwise received.
The orphan’s pension from pillar 1 is 40% of the disability or retirement pension, and under the BVG (pillar 2) each child receives 20% of the deceased person’s disability or retirement pension.
The maximum insured annual salary for insurance purposes when death is due to illness is much lower than if death is by accident, namely CHF 85,320.
Special circumstances: divorce, cohabiting partners and patchwork families
In Switzerland, the traditional family model is well insured. However, special circumstances such as divorce, cohabitation and patchwork families can cause major pension gaps, because these family models are disadvantaged under AHV and accident insurance.
Unmarried partners do not receive a pension in the event of death. Pension funds can also decide at their own discretion whether to pay a pension to cohabiting couples.
Surviving ex-spouses are only entitled to a pension on the death of their ex-wife or ex-husband if the marriage lasted at least 10 years and if they were awarded a pension or lump-sum settlement in the divorce decree.
In a patchwork family, neither the unmarried partner nor non-biological children receive survivors’ benefits in the event of death. The situation changes if the partners marry or adopt children from their partner’s previous relationships.
For example: Martin and Andrea live as cohabiting partners. Andrea has three children from her first marriage, who live with them. If Andrea dies, the lump-sum death benefit will go to her children. Martin will get nothing. It will be very difficult for him to continue servicing the mortgage on their jointly owned house. The couple must name each other as beneficiaries in their private pensions so that they are covered in the event that one of them should die.
Good to know: In your will you can financially protect your partner. It is also possible for partners to name each other as beneficiaries in their pension fund so that in the event one partner should die, the surviving partner will receive a pension.
Closing gaps in pension cover through death benefits insurance
With your pillar 3, you can close the pension gaps that may arise in the event of death. A good solution is a death benefits insurance policy. A lump-sum death benefit is paid to the person named in the policy if the policyholder dies. We also recommend that you draw up a will.
When you conclude death benefits insurance, you decide whether the insured sum should remain constant or decrease. A decreasing benefit means that the amount paid to the beneficiary decreases every year. This type of policy makes sense in many cases, for example:
When you conclude death benefits insurance, you decide whether the insured sum should remain constant or decrease. A decreasing benefit means that the amount paid to the beneficiary decreases every year. This type of policy makes sense in many cases, for example:
- if the surviving partner can work more as the children grow older;
- if the financial protection offered under pillars 1 and 2 improves over time;
- if you are also saving regularly with pillar 3a.
The constant benefit is recommendable if your risk is unlikely to change and in a few years you would still be dependent on receiving the full benefit.
Identifying and closing income gaps with the help of experts
You should find out as early as possible about obtaining additional protection in the form of insurance, as pension gaps can be calculated fairly accurately. The older you are, the more expensive most solutions become. Previous accidents or illnesses and special occupational or personal risks may also make insurance more expensive or even make it impossible for you to qualify for insurance.
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