Income protection insurance in Germany

There are a number of other forms of insurance that pay, for example, in the event of loss of basic abilities - “Grundfähigkeiten”, for instance speaking, hearing, walking. Usually this kind of insurance also pays out a monthly pension in such a case, some insurance also offer lump-sum payments.

One alternative on the market is the criticals illness insurance (also known as dread disease coverage). It - similar to a a life insurance - pays out a one-time amount at the diagnosis of a really serious illness, regardless of whether you can continue to work or not.

The pay-out is usually a lump sum and not a monthly pension (though this can be combined with some insurance companies). In contrast to an occupational disability pension this means the money can run out eventually if you continue to be unable to work for long term.

On the other hand you’ll have a large amount of money available instantly and without regards to your ability to fully work or not. For certain professions and situations, such insurance can be a good supplement to an occupational disability insurance or even an alternative as the best financial protection.

This insurance pays a pension if you can only work less than three hours a day in any profession. The amount of the disability pension is agreed in the contract. The one most similar to occupational disability insurance is total disability pension insurance (German: Erwerbsunfähigkeitsversicherung). This is an emergency solution for those who cannot get an occupational disability insurance or cannot afford the premiums.

A pension is paid, if long-term physical or mental restrictions prevent the insured party from working up to three hours per day. In the case of occupational disability insurance on the other hand, the agreed pension should come into effect if the insured party can no longer work at his previous occupation to 50 percent. Total disability pension insurance only protects the ability to pursue any occupation. It is therefore less costly, as the risk for the insurance company is considerably smaller.

A 30-year-old architect who is still able to work four hours per day as a museum attendant is, therefore, not unfit for work. Total disability pension cover would cost him only € 30-50 per month from a number of insurance companies in Germany and would provide a pension of € 1,000 Euro.

Occupational disability insurance will of course cost more (examples see above or ask us for an estimate here). The amount of the rate depends primarily on the amount of the monthly pension, the age and occupation of the insured party as well as the term of the contract.

Total disability pension cover is, above all, low-cost basic provision. In addition to this, it is suitable for persons with risky occupations, who have to pay considerably higher premiums for classic occupational disability insurance or cannot get any occupational disability cover at all.

This type of insurance offers an even more rudimentary form of cover. This first comes into effect if elementary human capacities are lost, such as sight, speech and the use of one’s hands as well as the ability to drive or climb stairs. Contrary to expectation, it is not accidents but rather illness that usually leads to the loss of certain physical capacities.

What is special about this product? The basic capacity pension is not coupled to the question of whether the insured party can work. If, for example, a person who has gone blind finds a new job as a masseur or telephonist, the pension or the capital continues to be paid out.

That would be unthinkable in the case of most occupational disability insurance and disability pension insurance. With a good basic capacity insurance, a 35-year-old receives a monthly pension of € 1,000 for monthly premiums of around € 30.

What insurance is offered to whom depends primarily on their occupation. Academics become unfit for work less often than those with physically demanding occupations. Unlike a roofer, a lawyer or a teacher can continue to work in a wheelchair despite motor system disorders.

In this case, an academic is not unfit for work and the insurance company for an occupational disability insurance may not pay out after all. It is extremely annoying if you have chosen to protect yourself and then have to fight with the insurance company about whether or not you are sufficiently ill.

Insurance policies against serious illnesses (aka Dread disease insurance or Critical Illness insurance) are just a pragmatic solution in such cases. Similar to basic capacity insurance, they pay out if one is affected by one of approximately 40+ clearly defined serious illnesses – regardless of whether the insured party can continue to work or not. Which includes the “big three” in our times: heart attack, stroke, and cancer.

More on income protection in Germany here:

The decision between occupational disability or dread disease is essentially a philosophical question: Would I prefer a pension for the duration (possibly temporally limited occupation disabilities) or will I gain more freedom at the moment when I become ill with a lump sum payment.

Not all serious illnesses covered by dread disease insurance necessarily end in death. The most frequently occurring illnesses, such as heart attack, stroke and cancer with one million new cases in Germany each year, have ever-improving chances of recovery.

However, someone who cannot go back to working 80-hour weeks at a law firm without putting their health at risk again after surviving a heart attack or a heart muscle inflammation is simply unemployed – and not unfit for work. An occupational disability insurance would not be obligated to pay out in such a case.

Employers in Germany are legally obliged to pay your income for a period of 43 days in the event of your inability to work. Publicly insured employees receive another 78 weeks of Krankengeld, a per diem that is capped at a relatively low level.

This in total maybe insufficient compared to your original salary if you are a high earner. If you are privately insured you can add a private per diem health insurance to your health insurance, which pays a per-diem in case of long-term illness.

Difference between ill and occupational disabled!

However, many people, even Germans, do not know that this kind of insurance stops to pay out as soon as you are considered to be rather occupational disabled than just “ill”. And it is the insurance that makes this definition.

Self-employed workers do not enjoy any public support (except if they pay extra for the statutory sick pay “Krankengeld”, but this is rare and not always possible). They have to depend on setting up a private per diem health insurance with the same critical situation as described above.

Disability pension from the state

If you become entirely disabled and cannot work in any capacity for at least 3 hours a day, you will get a disability pension (Erwerbsunfähigkeitsrente) from the government, which pays out only in small monthly amounts. Nothing you really want to rely on in order to sustain your current life style and financial situation.

Government support is insufficient for most people and will only become available should you be unable to carry out ANY form of work, not just your current occupation. Anyone who is chronically ill and can, therefore, no longer work faces in Germany the threat of social decline. Only considerable savings or insurance can provide relief.

It is not for no reason that consumer protection groups and insurance experts have been recommending the acquisition of private occupational disability insurance in Germany for years, in a rare instance of agreement between the two.

Monthly pension or Lump Sum Payment? Anyone who depends on their hands or their intellectual work should not take the high risk of loss of income due to lengthy illnesses lightly. Yet with the growing range of products on offer, in addition to cost considerations the insured party must also weigh-up which health risks they are more likely to suffer from: Depression, stroke or the inability to use one’s hands?

Is a monthly pension for as long as I stay disabled my best form of coverage or should I rather aim for a lump-sum payout? Or a combination of both?

Obviously there can’t be a “one-size-fits-all” solution here. One clearly needs a modicum of good fortune to have chosen the correct insurance in the case of misfortune. Therefore, it is imperative to use professional advice for this process, ideally and independent advisor like an insurance broker.

This is all the more true because for this crucial insurance the terms&conditions are of the utmost importance. What level of cover you receive is what really matters and that the selected insurance company has a solid track record with regards to how it settles claims.

But also, the financial stability of the insurance company for the foreseeable future because this is usually a long-term contract. When you seek financial protection in any way or form through an insurance contract, the cheapest insurance offered to you may in the end just be the worst solution you could take.

Anyone who answers these questions incorrectly or incompletely is in breach of their pre-contractual duty of disclosure and may then not receive any benefits in the event of occupational disability - despite years of premium payments.

Therefore – and because for Expats the German language questions may sometimes be hard to fully understand – having an independent advisor on your side who is even liable legally if the application is not worked out properly due to his own fault, is very important in order to assess your medical history properly and fill in the blanks correctly in the insurance application form. With the risks and sums involved, you really don’t want to go for DIY here.

If the answers to these questions indicate an increased risk of occupational disability, the policy may be expensive or incomplete. This is because coverage is then often only possible with risk surcharges or benefit exclusions. In extreme cases, it may even be impossible to take out the insurance.

This is why it makes sense to take out occupational disability insurance at an early stage - i.e. before such increased risks become apparent to the insurer. If the risk increases during the term of the contract due to a different occupation or a new, high-risk hobby, this does not have to be subsequently reported in the case of modern contracts/policies.

Although you only ever pay the net premium (often refered to as “Zahlbeitrag”), you should not lose sight of the gross premium (sometimes also called the maximum payment premium or “Bruttobeitrag”).

This is the amount you would have to pay if the insurance company did or could not let you participate in the company's surpluses. Insurers can increase the price up to the gross price without any circumstances.

Therefore, don't just look at a current premium. Also compare how much insurers can raise the premium. For some providers, the spread between gross and net premium is Zero, while others reserve the right to double the premium.

An insurance plan with a low net-premium can become a nightmare of increases if the bonus-calculation of the insurance company turns out to be simply too optimistic or simply completely nuts. You are usually better off with an insurance with no spread between net- and gross premiums at all or just small differences between them in order to have a reliable number to plan your budget for years to come.

In principle, all occupational disability insurers can check with self-employed persons whether a reasonable reorganization of work processes can reduce the degree of occupational disability and thus avoid or prevent occupational disability.

But to what extent is a reorganization reasonable? In the past, there were often different opinions on this between the insurance company and the insured. In the meantime, more and more insurers - especially for companies with fewer than 5 employees - are waiving such reorganization.

Therefore, it makes sense to pay attention to the wording of this reorganization clause before signing the contract.

Quite often, for self-employed a critical illness insurance can make more sense. Because in case of a heart-attack, stroke or cancer you will not necessarily become occupational disabled right away or would not want to give up your business. But you might need to hire some external experts or other assistants in order to keep your business running and rescue what you have build up for now and for the future.

In such a case a lump sum that is been paid out at the moment a doctor diagnoses you with one of up to 40+ clearly defined severe ailments and medical conditions, you have the monies available to pay for this and also to pay for the best doctors and hospitals available.

Civil servants with more than five years of service are retired in the event of incapacity and receive a pension from their employer that increases with the length of service. This means that these civil servants are significantly better off than other employees.

This does not apply to probationary civil servants and civil servants on revocation. For them, private occupational disability insurance - possibly with a service disability clause - makes perfect sense.

A genuine disability clause does not necessarily improve insurance coverage, but it can make it easier to prove occupational disability. In this case, the certificate of retirement and the medical certificate should be sufficient.

Yes! This answer may seem surprising at first, because these people do not yet have a real profession. In addition, the risk of occupational disability at a young age is comparatively low - but not impossible.

The main reason for the unequivocal "yes" is that young people also suffer health problems due to illness, stress or accidents.

Thanks to their constitution and the medical options available to them, they are therefore rarely unable to attend school, college or work. But with pre-existing conditions, it can be difficult or even impossible to conclude a sensible and affordable occupational disability insurance policy later on. It is advisable to conclude the contract while still young and healthy.