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What is Kapitalförsäkring and why should you get one?

What is Kapitalförsäkring and why should you get one?

Understanding Kapitalförsäkring and its benefits is crucial for offshore wealth accumulation and long-term financial security.

If you want to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or use WhatsApp (+44-7393-450-837).


If saving money is one of your financial goals, endowment insurance, or otherwise called capital insurance, (Kapitalförsäkring in Swedish) should be considered as one of your options.

In this article we’ll tell you everything there is to know about endowment policies, including how they work and what they’re good for.

What is kapitalförsäkring
What is kapitalförsäkring? | Photo credit: Pexels

What is Kapitalförsäkring?

Kapitalförsäkring are a type of saving where you invest your money in insurance with an insurance company. They allow you to build up a capital at an interest rate similar to bank savings, but with the added caveat that there is predetermined commitment period and the condition that you cannot withdraw the full amount in advance.

A portion of the premiums you pay is also used for life insurance and provides you with a payout in the event you die, or in some cases fall critically ill, during the policy period.

With a kapitalförsäkring, the holder subsequently receives the surrender value as decided by the insurance company depending on how long the policy has been in effect and how much has been paid into it. Policies are either traditional with-profits or unit-linked (including those with unitized with-profits funds).

Policyholders can pick how much to pay each month and how long they want to stay, often for 10 or 20 years, making it a great option as a low-risk method of saving.

As such, think of Kapitalförsäkring as a type of vehicle for your savings that pays out money and offers security for the future. Endowments are usually used to build up capital, but they can also be used as an investment vehicle in itself.

For instance, endowment insurance can be beneficial if you wish to set aside money for a child and specify ahead of time when the payout will occur by designating the child as the beneficiary. If you want your savings to be distributed over a longer length of time with a specific amount each month, endowment insurance is also a good option. But you can also take the cash out all at once as a lump sum.

How does kapitalförsäkring endowment insurance work?

An endowment policy is a type of savings in insurance that pays out money to your beneficiary if you die during the policy period. It works like this: You pay a monthly premium into an investment fund, which earns interest and invests the funds in assets that grow over time. The premiums are used to pay for life insurance and a payout should anything happen while they’re invested; otherwise, they remain locked up until they mature.

Endowment insurance is insurance with a specified commitment period that you can save in, usually with the restriction that you can’t withdraw the entire amount up front.

You have the option of choosing how to get access to the funds once the bound period has passed. either by making a one-time, large payment or regular payments over a longer period of time.

Kapitalförsäkring typically offer a few options when it comes to how you can withdraw your money:

Normally, you must decide whether you will handle the selection of the savings products yourself or if the insurance company will handle the investments before deciding which form of endowment insurance you will have.

Select deposit insurance or fund insurance for the ability to select from a variety of securities if you want to be able to buy and sell investments the same way you would if you had, for instance, a custody account.

You get to decide how to invest your money if you have deposit insurance. You could, as an illustration, invest in securities, funds, or shares. It’s vital to keep in mind that this type of endowment insurance does not provide any assurances for your investments. The investment risk for the insurance must be assumed by you.

The insured value develops in line with the growth in value of your chosen investments. The value of your deposit insurance either rises or falls depending on this value development.

Alternately, unit or fund insurance entails saving in a variety of funds provided by the insurance provider, whose fund selection differs from company to business. You get to specify the level of risk the funds should have since you get to pick the funds you wish to invest in.

With this type insurance, however, there is no assurance to recover your entire investment amount, as there is no guarantee for the sum you have selected to invest. Depending on how the fund’s value develops, the value of the shares of the fund may rise or fall.

You select traditional insurance if, on the other hand, you would rather leave all investment and capital management to the insurance firm.

Traditional insurance entails that the insurance provider handles all aspects of your financial investments and savings. The money is invested by the insurance company in a portfolio that includes stocks, properties, and interest-bearing instruments.

You receive a guarantee for your investments after the placement of your funds is complete in the form of guaranteed interest. The rate that the insurance provider guarantees to you as a traditional insurance saver is known as the guaranteed rate. The guarantee amount is based in part on the premium payments you make, which are the cost for the insurance period, and in part on the current guarantee interest rate.

Kapitalförsäkring are different from unit-linked life insurance in a few ways. The latter is another type of savings product that offers safety for the future like endowments.

However, unit-linked plans are designed to accumulate value until death so that at some point after you’ve passed away it pays out on behalf of your beneficiaries—usually children or grandchildren who inherit those funds later down the road.

Unlike regular savings accounts however, unit-linked plans do not guarantee any interest rate returns on their investments; instead they rely entirely upon their performance relative to other investments such as stocks, bonds, or other securities and assets.

Finally, different companies’ endowment insurance policies have different terms and costs. Read the fact sheet for the insurance you wish to purchase as well as the policy terms and conditions.

If you’re good at saving money but not so confident about managing risk, an endowment policy could be perfect for you. But if you prefer to take more control of your finances, then a unit-linked life insurance might be better suited to your needs. It all depends on what kind of person you are and what kind of financial goals you want to achieve.

Endowment insurance could be a good option for long-term savings
Endowment insurance could be a good option for long-term savings. | Photo credit: Pexels

What are the benefits of kapitalförsäkring endowment insurance?

If you put your money into endowment insurance, you are exempt from paying taxes on any gains made from the sale of your shares or other assets. This is because endowment insurance, as opposed to regular savings, is subject to distinct tax regulations.

Your annual standard tax, for instance, is based partially on the payments you’ve made and partially on the actual worth of the savings you’ve accumulated.

Basically, a kapitalförsäkring endowment policy only allows deposits and withdrawals; you cannot add or remove securities. If you want to withdraw money before the commitment term ends, you may have to pay a fee in specific circumstances (withdrawal fee or redemption fee).

The insurance is taxed at a flat rate continuously, so you can dispose off assets from it without incurring tax. When the insurance is paid out, you don’t pay any taxes.

The way it works is instead you pay a percentage of your holding as return tax, an annual flat tax.

This common tax is based on the yearly average of the interest paid on government loans and has a lower cap of 1.25 percent. The amount of this return tax is determined by the insurance policy values as of the first of each year and the deposits made throughout the year.

Depending on when time of year they are made, these deposits are tallied differently; during the first half of the year, they are treated as 100%, and during the last half of the year, they are counted as 50%. Then, multiply this sum by the interest rate on government loans as of November 30 of the prior year + 1%. The remaining balance is then subject to a 30 percent tax.

The normal tax is automatically raised to 1.25 percent if the total of the interest on government loans plus the additional 1 percent falls below that amount.

Be sure to consult your financial advisor or tax expert for the finer details of your kapitalförsäkring endowment insurance so you can better align it with your financial goals.

Kapitalförsäkring are beneficial because they allow you to swap between shares and funds without incurring additional tax costs if you have endowment policies that go along with a profit. If you own Swedish shares that produce dividends, you are also exempt from paying taxes on those gains.

If you decide to sell investments or stock, the insurance provider who handles your capital insurance will manage this; you do not need to notify the tax authority. The standard tax that must be paid is determined by the insurance firms based on the insurance’s worth.

You can choose how the payments should be made, such as the frequency of installments and how long the payment plan should last.

For your coverage, several insurance providers provide repayment protection. This means that in the event of a sudden death, your next of kin will receive a portion of the insurance value.

Additionally, you can decide for yourself who would receive the funds in the event of your untimely passing or specify that they only do so after you reach a certain age.

You can designate a beneficiary who will receive the insurance payout at the time you specify or upon your passing. You have the option of taking the money out in one single sum or several smaller payments spaced out over time.

You can’t get your money back until the policy matures. If you want to withdraw at any point before maturity and pay off the loan, you’ll have to pay extra interest on top of what’s already been paid in premiums—and it may not even be enough for that!

Endowment policies are flexible. You can use them for retirement, children’s education and more. If you’re good at saving money but not so good at handling risk, endowment policy could be a good option.

There are drawbacks, however. When a private individual invests in shares and funds, which are offered by the government through the National Debt Office, investor protection is typically incorporated.

Since the insurance firm, not you, is the legitimate owner of the shares and funds in the policy, there is no investor protection in the case of endowment insurance. You are not the actual owner of these policies, even though you choose the stocks and funds to invest in.

There is also the fact that you must pay a return tax regardless of how much your shares and funds increase or fall in value over the course of the year. In the event of a loss, you also are not permitted to claim tax deductions, such as interest deductions, as is the case when you file capital losses.

It is advised you seek professional financial help when going over your investments
It is advised you seek professional financial help when going over your investments. | Photo credit: Pexels

It is advised that you educate yourself on the terms and costs of various insurances before making a purchase. The pre-purchase information and general information provided by the insurance firm contain details about what pertains to the various insurance policies.

As you can see, there are a lot of benefits to an endowment policy. It’s a great way for you to save money for your future needs and give them a little extra peace of mind. If you want more information about endowment policies or if you want to find out how much your policy is worth, contact us today!

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Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.

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