Do you already have life insurance arranged, or are you just considering it for now? Before you sign a contract, you should at least roughly know which life situations you can address through it. There is also the option to have multiple risks and multiple persons insured under one contract. This brings advantages, above all a discount on the premium. Do you know what to watch out for when arranging a contract carefully?
Brief answer. Life insurance is mainly worthwhile for someone whose income a family or mortgage repayments depend on. It should primarily cover disability, death, and serious illnesses. Short-term loss of income due to illness or injury is covered by sickness insurance or an emergency fund for six months of expenses. If the contract meets the conditions of the law, you can deduct the premium from your tax base and save up to 7,200 CZK (about 330 USD) per year.
What exactly is life insurance?
It is a contractual document agreed between the participant and the insurance company, which is intended to financially protect the policyholder or secure their loved ones in the event of unexpected life events.
In what cases can you claim a payout? For an accident, illness, hospitalisation in a hospital, but also in the case of permanent consequences, disability and death. In the event of death, it is advisable to designate a beneficiary. A condition is a proper contractual arrangement and timely payments for the insurance.
Health is the most important quality of the body.
Aristotle, Greek philosopher and teacher (384 to 322 BC)
Who will benefit from life insurance, and who less so?
Life insurance replaces the money your household would lose if you were unable to work due to disability or death. It is therefore mainly worthwhile for parents of young children, breadwinners, and people repaying a mortgage or other large loan. The more people and commitments depend on your income, the more sense higher insurance amounts make.
Someone who doesn’t support anyone, has no debts, and has an emergency fund for six months needs less of it. The article Personal emergency fund, how much to save explains how much to put aside. Short-term loss of income due to illness or injury can be covered by incapacity insurance or this emergency fund.
Firstly, it should be invalidity, especially of the third degree, and death, followed by serious illness and permanent consequences of an accident. If you want protection without a savings component, read about when term life insurance is worthwhile. When a bank requires insurance for a mortgage, it can demand a assignment in its favour.
How to set up life insurance?
Set up your life insurance contract according to your current life situation. Consider which risks trouble you the most and can easily disrupt your financial budget. Insurance should protect you against short-term and long-term income loss as a result of illness or injury. Limits of individual risks can be flexibly changed.
Before taking out a mortgage, consult with the bank about the required version of life insurance. If you take out life insurance with the bank where you intend to take out a mortgage, you may be eligible for a discount.
At what age should you take out life insurance?
If you strive for the certainty that the insurance company will accept you for insurance, try to arrange the contract at the lowest possible age. Part of the contract is of course also a health questionnaire, and this is decisive for acceptance into insurance. The insurance company may request a report on your current condition from your attending physician. Life insurance should primarily be arranged by the breadwinner of the family.
Tip: Life insurance should support your happy and fulfilling family life. Also read the post Financial literacy: what it is and how to start with it
Flexi life insurance adapts to your needs.
You can easily arrange an innovative insurance product from Kooperativa online. How? On the website, you enter your date of birth, weight, height, and whether you are a smoker. The application will then lead you to the offer of insurance tariffs (BASIC, COMFORT, PREMIUM).
Individual tariffs are described in great detail. They provide information on what insurance risk can be arranged and at what price. The optimal variant at a reasonable price seems to be the golden middle path and the choice of the COMFORT tariff, which also thinks of insurance for serious illnesses.
The amount for securing individual risks can also be changed by agreement with the insurance company’s sales representative. After an expert consultation, they will advise you on their optimal setting. Keep in mind that quality coverage is necessary throughout your entire productive life.
You can also deduct life insurance premiums for endowment insurance from your tax base. Since 2024, a joint limit of 48,000 CZK (about 2,200 USD) per year applies, into which supplementary pension savings and the long-term investment product are also counted.
What are the conditions for claiming a tax deduction and reducing tax?
As a natural person, you can claim this benefit only if your policy meets all the following conditions of the Income Tax Act.
- The insurance policy includes the agreed term life insurance risk of “reaching a certain age”, or the risk of “death or reaching a certain age“.
- The insurance contract is arranged for a period of at least five years. For contracts concluded from 1 January 2024, the payout must come after 120 months at the earliest and in the year of your 60th birthday at the earliest.
- The policyholder and the insured are the same person.
- The insurance policy does not include the option of withdrawing savings.
- The insurance contract is arranged at least until the policyholder reaches the age of sixty.
Which life insurance can you deduct and how much will you save?
The Income Tax Act in Section 15a(3) recognises only life insurance for the event of survival, death or survival, and pension insurance with a claim no earlier than in the year of your 60th birthday. Only premiums for these insurances can be deducted, as stated in the confirmation from the insurance company (Section 38l(1)(j)). Premiums for risk components, such as accident or disability, are not included.
For contracts concluded from 2024, the insurance amount for survival, if agreed, must be at least 40,000 CZK (about 1,800 USD) for an insurance period of 10 to 20 years and at least 70,000 CZK (about 3,200 USD) for a longer period. The payout must not come before 120 months and in the year of your 60th birthday (Section 15b(1)).
Contracts entered into before the end of 2023 are governed by Section 15(6) as amended until 31 December 2023, meaning payment will be made no earlier than 60 months and at the age of 60, with a fixed insurance amount for survival of at least 40,000 CZK (about 1,800 USD) for a term of 5 to 15 years and 70,000 CZK (about 3,200 USD) for over 15 years. The joint limit also applies to these (transitional provisions of Act No. 462/2023 Coll.).
The deduction reduces your tax base, so you save 15% of the deducted amount. With a monthly premium of 2,000 CZK (about 92 USD), you save 3,600 CZK (about 170 USD) annually. You share a limit of 48,000 CZK (about 2,200 USD) annually with supplementary pension savings and a long-term investment product. An employee will roughly receive the full savings of 7,200 CZK (about 330 USD) with a gross monthly salary of 21,140 CZK (about 970 USD). With a salary of roughly 17,133 CZK (about 790 USD), you save nothing, as the tax is already covered by the tax reduction for taxpayers of 30,840 CZK (about 1,400 USD).
How to claim the deduction and what your employer will add.
The employee claims the deduction in the annual tax reconciliation, requesting it from their employer no later than 15 February, and providing the contract and a confirmation from the insurer of premiums paid for the previous year. Those who file a tax return claim the deduction in it.
The employer’s contribution to tax-supported life insurance, together with contributions to supplementary pension savings and DIP, is tax-exempt up to 50,000 CZK (about 2,300 USD) per year and is not counted towards your limit (Section 6(9)(m)).
What to look out for when entering into a contract?
Carefully consider the insurance risks you agree to in the contract. Be realistic and consider what you are actually investing in. A poor combination of risks may mean you don’t receive a payout, even though you have paid the premiums for several years.
Another risky area is exclusions from insurance. Each financial institution has its own specific conditions, and it is necessary to familiarise yourself with them before taking out insurance. You can find them in the General Insurance Terms conditions, or alternatively the Supplementary Insurance Terms of the specific insurer.
What should you specifically be aware of? Common risks include alcohol and drug use, terrorism, participation in demonstrations, suicide, concealing a serious illness.
Interesting fact: Is it possible to be insured and at the same time build up a small emergency fund? Read on.
Accident versus investment insurance.
You are paying your insurance properly. The money is leaving your account, but nothing is being saved anywhere. You haven’t had an injury in the last five years either. Does paying for accident insurance make any sense at all? An accident, car crash, illness are unfortunately life events that you have no way to influence.
Try to face them, however. In the past, accident insurance in combination with capital insurance was added to life insurance arranged “for endowment” and death. This had the function of a savings component, which compensated for the loss from the accident payment.
Today the situation is different. Insurance companies offer the arrangement of investment insurance and investing funds into funds that are supposed to generate profit. It depends only on the client and their willingness to risk. Cautious clients rather choose a conservative investment. This should enable the appreciation of the reserve and ensure that at the end of the insurance a certain capital component and moderate protection against inflation are created.
Tip: Being secure while also building an emergency fund is the ideal state. Read our advice on savings as well, 1 tip that will finally teach you how to save money
Comparison of life insurance.
Every customer wants to get the best possible deal, and as a customer of an insurance company, you strive for the highest quality life insurance. Don’t be fooled by attractive advertising alone, and compare different products from various insurance companies.
One option is to visit several insurance companies informally and ask sales representatives for advice and to prepare an insurance proposal.
Another option is to use online comparison tools. After entering basic information about yourself, or your family members, you can immediately see what it could look like and under what conditions.
If you are not completely sure about some information, do not hesitate to contact the advisory hotline or chat of the chosen insurance company.
Cancellation of life insurance
If you decide to take this step, remember that problems never sleep. Before cancelling an insurance policy, build up a sufficient emergency fund to cover at least a six-month period when you might lack regular income from business or employment.
Or look for other forms of coverage. Alternative investment or acquiring real estate for the purpose of renting out can be helpful. If you create a secondary and sure source of regular income, paying for insurance loses its meaning for you.
What happens to tax when you cancel the contract early
If you withdraw any amount from the contract from which you deducted premiums, or cancel it before the age of 60, the deducted amounts will be taxed. The same applies before 120 months for contracts from 2024 and 60 months for older contracts. The amounts deducted over the last 10 years become other income in that year (Section 15b(4)(a) and Section 5, for older contracts).
Whoever deducted 24,000 CZK (about 1,100 USD) per year for five years will declare 120,000 CZK (about 5,500 USD) and, at a rate of 15%, will pay an extra roughly 18,000 CZK (about 830 USD). An employee must file a tax return because such income exceeds 20,000 CZK (about 920 USD) (Section 38g(2)), and can file it electronically.
Employer contributions that were tax-free in the year of selection and in the 10 years prior will also be taxed, as income from dependent employment (Section 15b(5)(b), for older contracts, previously Section 6(9)(p) point 3 according to Article II point 3 of Act No. 462/2023 Coll.).
The deducted amounts will not be taxed upon payout due to third-degree disability, death, or transfer of all funds to another tax-supported life insurance policy, nor for older contracts, nor upon entitlement to a state old-age pension. Therefore, before cancelling the contract, calculate not only the redemption value but also how much you will pay in tax.
Cancellation of accident insurance
If you feel that paying life insurance is unnecessarily burdening you, resort to contract reduction. Carefully consider which risk is important and which, on the other hand, you are willing to exclude from the contract. You can manage to finance a minor injury from your emergency fund, but a serious injury with permanent consequences already brings certain risks.
Life insurance is a tool that serves for your protection. What should not be missing in it? Coverage for the event of an accident with permanent consequences, serious illnesses, but above all coverage in the event of partial or full disability. This is a real risk that can completely remove you from everyday activities and employment.
Furthermore, it requires modifications to your accommodation, car, or possibly purchase of a wheelchair or compensatory aids. These total costs can unfortunately financially ruin you.
USD amounts are approximate, converted at the Czech National Bank rate of 21.80 CZK (about 1 USD) per USD on 2 October 2026.
