Ageing reserves in private health insurance: how the premium savings pot works

Private health insurance calculates in the same way as life insurance (§ 146 VAG): the premium is calculated so that it would be enough at a constant level over the entire term of the contract, although health costs rise with age. In young years, the policyholder therefore pays more than their treatment costs. This surplus, on average about 30 percent of the premium, forms the ageing reserves.

In old age, the pot is drawn down as planned and balances the difference between the constant premium and the higher costs. It does not lower the premium. It prevents the premium from following the costs.

In addition to the built-in savings share, the insurer charges the statutory surcharge of ten percent under § 149 VAG, from the calendar year after you turn 21 until the calendar year in which you turn 60. These funds are earmarked. From age 65, the insurer uses them to soften premium adjustments, and from 80 they may lower the premium directly.

From 60, the surcharge no longer applies, so the premium you pay falls noticeably before the relief effect begins. How this affects the overall picture in retirement is covered on the page on private health insurance in old age.

The insurer invests the reserves on the capital market and calculates with a cautious actuarial interest rate: at most 3.5 percent in older contracts, much lower in new business for years now and set individually by each company. If the investment earns more than the actuarial interest rate, surplus interest arises, and 90 percent of it must benefit the policyholders through the direct credit (§ 150 VAG), as additional reserves or for premium relief in old age.

The cautious calculation is intended: better to distribute quiet surpluses than to miss promised interest. For policyholders, this also means that the quality of an insurer's investments has a direct effect on how premiums develop later, visible in the net return in the annual reports.

The consequences of a switch are the most important chapter in practice:

This leads to the most important rule of thumb when we advise on existing contracts: the longer a contract runs, the more expensive an external switch becomes and the more valuable an internal one. In supplementary insurance, by the way, ageing reserves are possible but not required. Plans without reserves start cheaper and in return rise more in old age.

The younger the policyholder is at entry, the lower the share of the premium that goes into the reserves. Consequently, the older they are at entry, the higher this share, because they have less time left to build up ageing reserves.

To calculate the ageing reserves, several factors come into play, and the calculation is extremely demanding in actuarial terms. The basis is current health costs. In addition, various statutory rules apply, for example the Insurance Contract Act, the Insurance Supervision Act and the Health Insurance Supervision Ordinance. The exact savings share that goes into the reserves varies and is rarely uniform.

Some misunderstandings come up again and again. The reserves are never paid out, not on cancellation and not in the event of death. The system only works because the collective shares the risk of a long life. A fixed age at which the plan's reserves start to be used does not exist either, as the age limits of 65 and 80 only apply to the funds from the statutory surcharge: when the pot steps in by calculation follows from how the plan is calculated, not from a fixed date. And the lower premium of the first years is not a use of the reserve. It is simply the phase in which the reserve is built up.

The sober core is correct: the reserve does not keep the premium constant. It dampens the rise, and the earlier the contract began, the better it does so.

In our advice work, the ageing reserves are the topic with the biggest gap between gut feeling and mechanism. Some people think of them as a personal savings account, others as a black box of the insurer. Both lead to expensive wrong decisions, above all when people switch.

We recommend that you ask your insurer in writing for your own reserve and the transfer value before any decision to switch. Only with these two figures can you honestly compare a change of insurer with an internal plan change. In most existing contracts, the internal route wins, precisely because of the savings pot this page is about.

Many insurers show the value in the annual statement. Otherwise an informal request is enough. If you are thinking about switching, also ask for the transfer value, because only this amount would actually move with you.

No. The balance goes to the pool of policyholders. Exactly this inheritance in favor of the others is part of the calculation and keeps everyone's premiums stable. If you want to protect your surviving dependents, you need other instruments.

Partly. The law only requires them in comprehensive insurance. Supplementary plans exist in both versions: with reserves they are more stable and more expensive, without reserves cheaper, with larger adjustments in old age. The plan conditions state which type you have.