Taxing Life Insurance Benefits in Switzerland

Hi there,

Are life insurance benefits counted as regular taxable income in Switzerland? If not, how are they taxed?

Thanks for your input

Hi there,

moneyland.ch is not a tax advisory service and it may be a good idea to consult a qualified tax consultant or inquire at your local tax office. Each canton has its own tax laws which govern cantonal taxes.

Federal tax laws only apply to federal tax. These apply country-wide:

With the exception of vested benefits life insurance policies, no federal tax is levied on the insurance benefits of permanent life insurance policies (policies which have a cash value) when certain conditions are met.

If permanent life insurance policies are held by policyholders for at least 5 years prior to the payment of the benefit or if policyholders are 60 years old or older when the benefit is paid out, then the interest/dividends earned (the difference between premiums paid and cash value) is tax free as long as policies are taken out before policyholders turn 66 years old. If policyholders do not meet these criteria, then interest/dividends on cash value is taxable. The remaining portion of the benefit is tax free. Refer to Article 24 of the Swiss law governing federal income tax.

The insurance benefits of term life insurance policies (which do not have a cash value), on the other hand, are taxable. However, these are taxed separately from other income at a special rate (one-fifth of the regular rate).

Cantonal taxes vary, so consulting a tax advisor who specialized in life insurance may be a good move if you expect to receive a very large insurance benefit. In some cases, taking up residence in another canton well ahead of the reciept of a life insurance benefit can help you keep a larger share of the benefit. This is especially true in the case of term life insurance.

Best regards from Moneyguru

More on this topic:
Term life insurance vs. permanent life insurance
Whole life insurance explained
Life insurance comparison
Death Benefits: Choosing the Right Life Insurance Coverage
Term life: 3a vs 3b
Term Life Insurance: Constant Benefit vs. Decreasing Benefit

Just to clarify, should I, as a beneficiary, pay tax on the lump pay out of the life insurance in case the policy is older than 5 years and the insured person was 40 when he passed away?

Thank you for the comment

Hi smupik,

Whether or not a life insurance benefit is taxable depends on the kind of life insurance used.

1. Term life insurance (insurance only with no cash value): For federal income tax purposes, term life insurance benefits are taxed as income at 1/5 of the standard rate. Cantonal taxes vary between cantons, but also generally use rates which are much lower than the standard income tax rates. The benefit is taxed separately from your income so that it does not affect your income tax bracket.

2. Permanent life insurance (life insurance with cash value) which does not fall under the pillar 3a or pillar 2 (vested benefits): Death benefits paid out to beneficiaries are generally freed from federal income tax. Capital gains on the life insurance policy are taxable if the requirements explained in the previous answer (policy held for a minimum of 5 years) are not met, or if there is other reason to suspect that the life insurance is used as a tax avoidance vehicle. You may also pay inheritance tax or gift tax depending on the canton in which you reside and your relation to the policyholder.

3. Permanent life insurance which falls under the pillar 3a or pillar 2 (vested benefits): Benefits are generally subject to capital withdrawal taxes.

Note: Permanent life insurance is generally subject to Swiss inheritance rules. Term life insurance generally is not.

Important: moneyland.ch is not a legal consultation or tax advisory service. Cantonal and municipal taxes (including income tax, capital withdrawal tax, inheritance tax, and gift tax) vary broadly between cantons. Consulting a tax expert who specializes in the tax laws of your canton of residence is recommended.