Variable Insurance Products in the Netherlands

This guide will help you understand how variable insurance works, who it may be suitable for, and what to consider before buying one in the Dutch market.

What Are Variable Insurance Products?

Variable insurance products are financial instruments that offer life insurance coverage along with an investment component. Unlike standard term insurance or whole life insurance, these products allow policyholders to invest their premiums in various investment funds, such as equity, bonds, or balanced portfolios.

The value of the policy is “variable” because it fluctuates based on the performance of the chosen investment options. This means both the cash value and the eventual payout to beneficiaries can go up or down depending on market conditions.

What are the Key Features of Variable Insurance?

Here are some of the key features of variable insurance products in the Netherlands:

• Dual Benefit: Provides life insurance coverage while also offering potential returns through investment funds.

• Policy Value Can Fluctuate: The amount your beneficiaries receive or the value you can withdraw is not guaranteed, it varies with market performance.

• Customisable Investment Options: You can often choose from a range of funds with different risk-return profiles.

• Flexible Premium Payments: Some variable insurance products allow flexibility in premium amounts and payment frequency.

• Long-Term Orientation: Generally suited for long-term financial goals like retirement, children's education, or estate planning.

How Variable Insurance Works in the Netherlands?

When you purchase a variable insurance product in the Netherlands, a portion of your premium is allocated towards the life insurance component (to cover mortality risk), and the remaining portion is invested in funds selected by you or recommended by the insurer.

The life insurance company usually provides a range of professionally managed funds with varying degrees of risk, from conservative bond funds to high-risk equity options. Over time, the investment performance directly affects the value of the policy. Upon death or policy maturity, the benefit paid out will depend on the value of the investments and any guarantees (if applicable).

It is important to note that Dutch regulators, including the AFM (Autoriteit Financiële Markten) and DNB (De Nederlandsche Bank), closely monitor such products to ensure transparency and customer protection.

Who Should Consider Buying Variable Insurance Products?

Variable insurance is not for everyone. It may be suitable for:

• Individuals with a higher risk tolerance who are comfortable with investment fluctuations.

• People seeking both protection and investment growth in one product.

• Policyholders with long-term financial goals, such as saving for retirement or wealth transfer.

• Those who prefer flexibility in choosing and managing investment options.

It may not be ideal for those looking for guaranteed returns or those who prefer a simple, fixed-benefit life insurance plan.

What are the Advantages of Buying Variable Insurance Products?

• Potential for Higher Returns: Offers growth potential compared to traditional life insurance.

• Personalised Investment Choices: You can align investments with your risk appetite and financial goals.

• Tax Advantages: In some cases, investment growth within the policy may enjoy tax deferral.

• Combines Protection and Wealth Building: You get the peace of mind of life coverage with the potential to accumulate savings.

• Adaptable Structure: You may be able to switch funds or adjust premiums as your needs evolve.

* You can use the life insurance calculator in the Netherlands to check the premiums applicable for your profile.

Risks and Considerations of Variable Life Insurance

• Investment Risk: Returns are not guaranteed and are subject to market volatility.

• Complexity: These products are more complex than standard life insurance and may require regular monitoring.

• Fees and Charges: There can be management fees, fund switching charges, and mortality costs that affect overall returns.

• Lapse Risk: If investments underperform or premiums are insufficient, the policy may lapse or lose value.

• Regulatory Warnings: Some Dutch consumers in the past have faced issues with "woekerpolissen" (high-cost insurance policies), so it's important to review costs transparently.

How to Buy Variable Insurance Products in the Netherlands?

• Assess Your Financial Goals and Risk Tolerance: Decide if you're comfortable with investment-linked insurance.

• Consult a Licensed Advisor or Broker: It's recommended to seek advice from AFM-registered advisors.

• Compare Products: Look at fund options, coverage amounts, charges, and historical fund performance.

• Understand the Fine Print: Carefully read the policy document, including cost structure, flexibility, and exclusions.

• Monitor Regularly: Keep track of investment performance and adjust your fund allocation if needed.

Final Thoughts

Variable insurance products offer a unique combination of life coverage and investment opportunity, but they are best suited for those who understand the trade-off between risk and reward. In the Netherlands, these policies are strictly regulated, but it is still essential for consumers to read the policy documents carefully, seek independent advice, and review their plans regularly to make sure the product remains aligned with their life goals.