Life insurance in private wealth planning

The beneficiary clause

For the lawyer, the life insurance policy is also a legal instrument with distinctive effects. Swiss insurance contract law equips it with features that make it a flexible instrument for transferring wealth outside the ordinary rules of succession and for protecting it against creditors. The starting point is the beneficiary clause. Under Art. 76 para. 1 VVG, the policyholder is entitled to designate a third party as beneficiary without the consent of the insurer, and under para. 2 the designation may cover the whole claim or only part of it. The policyholder remains free, under Art. 77 para. 1, to dispose of the claim during his lifetime and on death even after a beneficiary has been designated. He loses the right to revoke the designation only if he has waived revocation in the policy by his signature and delivered the policy to the beneficiary, as Art. 77 para. 2 provides.¹

The designation creates, under Art. 78 VVG, an independent right of the beneficiary to the insurance claim assigned to him, subject to the policyholder's power of disposal. This is the decisive legal feature. The sum insured does not fall into the estate of the deceased policyholder. It passes directly from the insurer to the beneficiary by virtue of the contract, without probate, without the involvement of an executor and without having to wait for the division of the estate. In a cross-border family, where the succession may be governed by several legal systems and administered in several countries, this direct payment can provide liquidity to surviving dependants within weeks, while the estate itself may take years to settle.

The Act supplies rules for interpreting the usual formulations. If the children of a certain person are designated, Art. 83 para. 1 VVG provides that the descendants of that person entitled to inherit are meant. Art. 84 VVG regulates the distribution where the heirs are designated as beneficiaries. Art. 85 VVG adds a rule of great practical value: if the children, the spouse, the registered partner, the parents, the grandparents or the siblings are beneficiaries, they receive the insurance claim even if they renounce the inheritance.² A family member can therefore disclaim an over-indebted estate and still receive the proceeds of a life policy. The rule protects the family provision that has always been the purpose of life insurance.

Protection against creditors

The second feature that makes the policy attractive in wealth planning is the protection against the policyholder's creditors. The basic rule of Art. 79 para. 1 VVG is that the beneficiary designation lapses when the claim is attached or when the policyholder is declared bankrupt. The Act then provides two exceptions. Under Art. 79 para. 2, if the policyholder has waived the right to revoke the designation, the claim thereby created is not subject to enforcement in favour of the policyholder's creditors. Under Art. 80, if the spouse, the registered partner or the descendants of the policyholder are beneficiaries, neither the claim of the beneficiary nor that of the policyholder is subject to enforcement in favour of the policyholder's creditors.³

The protection is reinforced by the right of entry of Art. 81 para. 1 VVG. If the spouse, the registered partner or descendants are beneficiaries under a life insurance contract, they step into the rights and obligations under the contract in place of the policyholder at the moment when a certificate of loss has been issued against him or he has been declared bankrupt.⁴ Art. 86 VVG allows family members to take over a policy that has been attached, with the policyholder's consent, by paying the surrender value. The family policy thus remains within the family even in the insolvency of the breadwinner. The protection that Art. 80 and 81 give to spouses and descendants has been a characteristic of Swiss law since the Act of 1908 and distinguishes it from many other legal systems in which the surrender value of a policy is freely available to creditors.

The protection has limits that an adviser must respect. Art. 82 VVG reserves the provisions of Art. 285 ff. of the Federal Act on Debt Enforcement and Bankruptcy (SchKG) on the avoidance of transactions detrimental to creditors.⁵ A debtor who pays a large single premium into a policy in favour of his family at a time when he is already insolvent, or with the recognisable intention of disadvantaging his creditors, cannot rely on the protection of Art. 80. The creditors can challenge the premium payment or the beneficiary designation under the rules on avoidance. The protection of the family policy is therefore a protection for provision made in good faith, and planning that is undertaken only when the creditors are already at the door is exposed to challenge.

Succession and compulsory shares

The direct payment of the sum insured to the beneficiary raises the question of its relationship to the compulsory shares of the heirs. Swiss succession law protects the descendants and the surviving spouse against disinheritance through compulsory shares (Pflichtteile). Since the revision of the law of succession that entered into force on 1 January 2023, the compulsory share of descendants has been reduced from three quarters to one half of their statutory share, the compulsory share of the parents has been abolished and the compulsory share of the surviving spouse or registered partner has remained at one half.⁶ The reduction has widened the freely disposable part of the estate and thereby the room for designating beneficiaries of life insurance outside the circle of compulsory heirs.

The law of succession captures life insurance at its surrender value. Under the revised Art. 476 of the Civil Code (ZGB), insurance claims payable on death, including those from the tied individual pension provision of pillar 3a, are added to the estate at their surrender value for the purpose of calculating the compulsory shares. Under the revised Art. 529 ZGB, such claims are subject to reduction at the surrender value that they had at the time of death.⁷ The rule has important consequences in practice. A pure risk policy without surrender value does not enter the calculation of compulsory shares, however large the sum payable on death. A policy with a high surrender value, such as a single-premium endowment, is counted at that value and can be reduced if it infringes the compulsory shares. The adviser who uses a life policy to benefit a partner, a child from a first marriage or a charitable purpose must therefore distinguish carefully between the risk component and the savings component of the contract.

The revised Insurance Contract Act of 2022

The Insurance Contract Act of 1908 was substantially revised in the early 2020s. Parliament adopted the amendment on 19 June 2020, and the Federal Council brought it into force on 1 January 2022.⁸ The Swiss Insurance Association summarised the principal changes for policyholders: a right of withdrawal within fourteen days, the extension of the limitation period for claims from two to five years, an ordinary right of termination for both parties after three years, the admission of text form in place of written form for most declarations and a direct claim of injured persons against liability insurers.⁹

Several of these rules are adapted to the special character of life insurance. The ordinary right of termination after three years does not apply to life insurance, since Art. 35a para. 3 VVG expressly excludes it.¹⁰ A long-term savings contract whose premiums are calculated over decades cannot be terminated by the insurer after three years without destroying its purpose. The policyholder's exit is governed by the rules on conversion and surrender. Under Art. 90 VVG, the policyholder may convert the policy into a paid-up policy or demand its surrender value. Under Art. 91, the insurer lays down the bases for calculating these values, subject to the approval of their adequacy by FINMA, and Art. 92 obliges the insurer to calculate the surrender value within four weeks of a request.¹¹

The extended duties of information in Art. 3 VVG are of particular importance for participating life insurance. The insurer must inform the policyholder clearly and verifiably in text form, among other things, about the principles of surplus calculation and distribution, about surrender and conversion values and their costs and, where applicable, about the qualification of the product as a qualified life insurance under the Insurance Supervision Act.¹² The last point connects contract law with the conduct rules that apply to life insurance products with a savings component. These rules belong to supervisory law and are treated in Chapter E.IV.

Taxation, pledges and wrappers

Two further aspects complete the picture. The first is taxation. A Swiss single-premium life insurance can, under certain conditions, yield a return that is exempt from income tax. The Solothurn tax manual summarises the cumulative conditions that the cantons apply in parallel with federal law: the insured person must have reached the age of sixty when the benefit is paid, the contract must have lasted at least five years and it must have been concluded before the insured person's sixty-sixth birthday. The contract must also serve the policyholder's own provision.¹³ The federal counterpart of these conditions is found in Art. 20 para. 1 lit. a of the Federal Direct Tax Act.¹⁴

The second aspect is the use of the policy as collateral. Under Art. 73 para. 1 VVG, the assignment and pledge of a claim under a life insurance contract require written form, delivery of the policy and written notice to the insurer.¹⁵ Private banks in Zurich and Geneva have long accepted the surrender value of life policies as security for Lombard loans, and the formal requirements of Art. 73 VVG are therefore part of the everyday work of their credit departments.¹⁶ The more complex structures in which a life insurance policy serves as a wrapper for a portfolio of bankable assets, often issued by insurers in Liechtenstein or Luxembourg for internationally mobile clients, are treated in Chapter E.V.

A practitioner's note

In cross-border practice, including many years in Singapore and Hong Kong, the author has encountered the Swiss life insurance policy chiefly as an instrument of family provision whose legal effects clients and foreign advisers tend to underestimate. The beneficiary clause of Art. 76 VVG, the creditor protection of Art. 80 and 81 VVG and the valuation rule of Art. 476 ZGB operate together. A plan that uses only one of them, for example by designating a beneficiary without considering the compulsory shares or the avoidance rules, can produce results that the family did not intend. The legal toolkit that the Rentenanstalt's founders could not yet foresee in 1857 has grown into one of the most refined sets of rules in Swiss private law, and its correct use requires the combined knowledge of insurance, succession and enforcement law.

Notes

1. VVG (cited above), Art. 76 para. 1: “Der Versicherungsnehmer ist befugt, ohne Zustimmung des Versicherungsunternehmens einen Dritten als Begünstigten zu bezeichnen”, and para. 2 on the designation of the whole or part of the claim; Art. 77 para. 1 on the policyholder's freedom of disposal and para. 2: “Das Recht, die Begünstigung zu widerrufen, fällt nur dann dahin, wenn der Versicherungsnehmer in der Police auf den Widerruf unterschriftlich verzichtet und die Police dem Begünstigten übergeben hat.” ↩
2. VVG (cited above), Art. 83 para. 1 on the interpretation of “children”, Art. 84 on distribution among heirs and Art. 85 on the acquisition of the claim by the named family members even where they disclaim the estate. ↩
3. VVG (cited above), Art. 79 para. 1 on the lapse of the designation upon attachment or bankruptcy, Art. 79 para. 2 on the exclusion of enforcement after an irrevocable designation and Art. 80 on the exclusion of enforcement where the spouse, registered partner or descendants are beneficiaries. ↩
4. VVG (cited above), Art. 81 para. 1 on the entry of the family beneficiaries into the contract upon the issue of a certificate of loss or the opening of bankruptcy against the policyholder, and Art. 86 on the right of family members to take over an attached policy at its surrender value with the policyholder's consent. ↩
5. VVG (cited above), Art. 82: “Gegenüber den Bestimmungen dieses Gesetzes über die Versicherung zugunsten Dritter werden die Vorschriften der Artikel 285 ff. des Bundesgesetzes vom 11. April 1889 über Schuldbetreibung und Konkurs vorbehalten.” ↩
6. André Steiner, “Erbrechtsrevision definitiv beschlossen”, IAF, 17 March 2022, https://www.iaf.ch/news/details/2022/03-17-erbrechtsrevision-definitiv-beschlossen. The article gives the date of entry into force, the new compulsory shares and the treatment of life insurance and pillar 3a at the surrender value. ↩
7. Urs Bürgi and Marc Peyer, “Das revidierte Erbrecht: Ein Überblick über die am 01.01.2023 in Kraft tretenden Änderungen (Teil 8)”, LAW.CH, 25 November 2022, https://law.ch/lawnews/2022/11/das-revidierte-erbrecht-ein-ueberblick-ueber-die-am-01-01-2023-in-kraft-tretenden-aenderungen-teil-8/. The article explains the revised Art. 476 and Art. 529 ZGB and the classification of pillar 3a benefits among lifetime gifts for the order of reduction. ↩
8. Swiss Federal Council, media release “Bundesrat setzt revidiertes Versicherungsvertragsgesetz in Kraft”, 11 November 2020, https://www.admin.ch/de/nsb?id=81093. The release gives the date of parliamentary adoption, 19 June 2020, and the entry into force on 1 January 2022. ↩
9. Schweizerischer Versicherungsverband (SVV), “Was ändert sich mit dem revidierten VVG?”, https://svv.ch/de/hintergruende/listicle/was-aendert-sich-mit-dem-revidierten-vvg. The page lists the right of withdrawal, the five-year limitation period, the termination right after three years, the restriction of termination after a claim in supplementary health insurance, text form and the direct claim. ↩
10. VVG (cited above), Art. 35a para. 3: “Die Lebensversicherung ist vom ordentlichen Kündigungsrecht ausgenommen.” ↩
11. VVG (cited above), Art. 90 on conversion and surrender, Art. 91 on the bases of calculation and their approval by FINMA and Art. 92 on the calculation of the surrender value within four weeks. ↩
12. VVG (cited above), Art. 3 para. 1 lit. e, f and k, which require information on surplus calculation and distribution, on surrender and conversion values and on the qualification of a life insurance under Art. 39a of the Insurance Supervision Act. ↩
13. Kanton Solothurn, Solothurner Steuerbuch, “Einmalprämienversicherung”, § 26 Nr. 1, https://steuerbuch.so.ch/steuern/einkommenssteuer/ertraege-aus-beweglichem-vermoegen-und-vermoegensverwaltungskosten/26-nr-1/. The page sets out the three cumulative conditions, the requirement of self-provision and the transitional rule for contracts concluded before 1 January 1999. ↩
14. Kanton Basel-Landschaft, Baselbieter Steuerbuch, vol. 1, 24 Nr. 7, updated 8 August 2025, https://kanton.baselland.ch/finanz-und-kirchendirektion/steuerverwaltung-steuerbuch/band-1/einkommen/downloads-1/band1_024_07.pdf. The commentary refers to Art. 20 para. 1 lit. a DBG (SR 642.11) for the federal treatment of single-premium insurance and sets out the same three cumulative conditions (conclusion before age 66, payment from age 60, minimum term of five years) for contracts concluded from 1 January 1999. ↩
15. VVG (cited above), Art. 73 para. 1: “Abtretung und Verpfändung bedürfen zu ihrer Gültigkeit der schriftlichen Form und der Übergabe der Police sowie der schriftlichen Anzeige an das Versicherungsunternehmen.” ↩
16. Lombard Odier, “Lombardkredite – wichtige Informationen”, https://www.lombardodier.com/de/home/private-clients/lombard-loans/key-information.html, as an example of a private bank offering such loans: “Durch die Aufnahme eines Lombardkredits gegen eine Lebensversicherungspolice können Sie beispielsweise eine Teilrückzahlung der Police vermeiden.” ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.