Loss of earnings insurance: when does it make sense?

A serious illness, an accident with long-term consequences or even the death of a parent - these are tragedies that can pull the rug from under the feet for families. But to make matters worse, if you're not properly insured, then you can also be faced with financial worries due to loss of earnings. 

Loss of earnings insurance - an unnecessary luxury? 

Luckily most of us are fine - we're healthy, have energy and can work and enjoy our life. And statistically speaking, we also have a good chance of things remaining that way. However, we cannot exclude the possibility that dark clouds will suddenly appear out of the blue. A mishap at work, an accident on a bike, a life-threatening illness - from one day to the next, nothing is as it was any more, and you know that you won't be able to look after your loved ones for a long period of time. In those moments, you need all the help and support you can get, i.e. professional guidance, good friends and great neighbors. And not least solid insurance, as it offers you financial support in otherwise difficult times. 

Who needs disability insurance? 

For single-income families, students, part-time workers and those on a low income, supplementary insurance is particularly important. This is because pensions from compulsory social security insurance do not compensate fully for lost earnings. In many cases, 60% to 90% of income is not enough to live on. Those having to stick to a budget should therefore consider supplementary private insurance. 

The same applies to those who do not work continuously or have not done so in the past: every incomplete OASI contribution year, due, for instance, to childcare duties, studies, traveling or a long stay abroad, results in a reduced pension. And this is also where there is a potential pension gap. 

Tip: as employees in Switzerland are better insured against accident than sickness, they can save on premiums by excluding accident risk.

I'm currently unfit for work. Who pays? 

In the event of illness-related inability to work, the employer is legally obliged to continue paying a salary. Depending on the employment contract and length of employment, the length of term for which your salary will be paid out will differ. Although voluntary in Switzerland, most employers have daily sickness benefits insurance for their employees. After a contractually defined waiting period, this comes into force and covers up to 80% of lost earnings for a maximum of two years. 

In the event of inability to work due to accident, your employer must continue to pay at least 80% of your salary for the first two days after the accident. Statutory accident insurance then takes over by paying 80% of your salary from the third day onwards.

What happens if become unable to work because of illness?

If you're unable to work for an extended period due to illness, you're covered by DI (Pillar 1, statutory pension) and the pension fund (Pillar 2, occupational benefits) which together pay around 60 % of your lost earnings. If you have joint children, they may also be entitled to a disabled person's child's pension. It’s important to note that benefits from a pension fund depend heavily on the employer's benefits plan. If this is limited to the statutory minimum, then you'll be faced with a significant drop in income and therefore a tricky reduction in the family budget. If you'd like to close financial gaps here, then look no further than private insurance.

The DI office specifies the degree of occupational disability. For example: Andreas works as a bricklayer. Due to hip problems, he can no longer do his job and is unable to work full-time as a bricklayer. However, the problems with his hip are not that severe, so from a medical perspective, he remains fully fit for work in another less physically demanding job. In this instance, there is also no occupational disability. However, if he was partially able to work in a job that was acceptable to him, this would be a case of partial occupational disability.

What are the benefits in the event of occupational disability through accident? 

If you can no longer work following an accident, the DI and accident insurance both pay you a pension. Here the injured person would receive up to 90% of their previous year's earnings. In Switzerland, people are normally much better insured against accident than illness - at the same time, most of those who can no longer work are affected by illness.

I'm divorced - will I still get a widow's pension?

In certain cases, a divorced person is still entitled to a widow's or widower's pension. The conditions for entitlement to these benefits differ between Pillar 1 (OASI) and Pillar 2 (OPA). That is why it's very important to carry out a personal pension analysis if your family status changes. Are they still adequately insured now? Your pension advisor can assess what you/your children are entitled to and how you can close any pension gaps.

How will our children be protected if one parent dies?

For children up to age 18, there's an orphan's pension entitlement under Pillars 1 and 2. If their initial schooling has not been completed by the time they turn 18, the insured benefits from Pillar 1 will continue to be paid until they turn 25. This applies regardless of the surviving parent's pension entitlement. In the tragic event that both parents die, orphans are entitled to two orphans' pensions. Entitlements differ from pension fund to pension fund when it comes to Pillar 2 income protection.

Is it worth insuring against loss of earnings? 

Whether the pension it pays is enough will depend on various factors, but you should aways expect to have a much lower household income due to illness-related loss of earnings. It's likely that this will not be enough to maintain your accustomed standard of living. A personal pension plan can help here - this means that despite a stroke of ill fortune, your family can stay in their own home or your children can continue with their studies. Find out the current status of your individual protection in a personal consultation.