Life insurance is a type of private insurance that will pay out a fixed sum in the event of your death. Many people take out life insurance in Germany to protect their family, to ensure they will not be left in financial hardship in the event of their death, but there are other reasons why you might choose to take out a life insurance policy.
Life insurance companies in Germany
The following company offers expat-friendly life insurance policies in Germany:
- MW Expat (life insurance broker in English, specialising in expats)
- Feather (all in English, all digital, designed especially for expats)
- Cosmos Direkt
What is life insurance (Lebensversicherung - LV)?
If you were to pass away, your life insurance company would pay out a fixed sum (predetermined by you) to one or more beneficiaries named in your policy. Life insurance is a popular type of insurance in Germany: each year, insurers pay out 85 billion euros in claims, according to the German Insurance Association.
There are two main types of life insurance in Germany:
- Term life insurance
- Capital life insurance
Capital life insurance
Once a very popular type of life insurance, capital life insurance (also known as classic life insurance), combines a long-term savings contract with a life insurance policy. If the insured person dies before the end of the contract, the beneficiary receives a lump sum. If, on the other hand, the insured person is still alive when the contract expires, they receive both a lump sum plus any profits that the company had generated during the term of the policy.
Capital life insurance has experienced a fall in popularity in recent years, largely because this type of insurance has typically offered a lower return on investment than other types of savings products. Many people nowadays instead opt for private pension insurance, if they wish to save long-term.
Term life insurance
Term life insurance is therefore what you might think of as the “standard” type of life insurance in Germany and the kind of policy that most people opt for. Term life insurance protects your dependents in the event of your death. Should you die unexpectedly, the insurance company will pay out a pre-agreed sum of money to the beneficiary or beneficiaries named in your policy.
This ensures that your dependents will not be left in financial hardship or with debts to cover in the event of your death. Term life insurance can cover things like:
- Mortgages and other debts
- Lost income
- Childcare and education
- Funeral costs
With term insurance, a policy is taken out - as the name suggests - for a fixed term. The longer the term, the more expensive the policy. The lump sum is only paid out if the insured person dies during the term of the contract. Once the contract expires, there is no payout.
Who should take out life insurance in Germany?
Unlike some types of insurance, like health insurance, having life insurance is not compulsory in Germany, but you may wish to take out a policy for peace of mind. It is especially worth considering if:
- You have a mortgage together with a partner
- You have children
- You don’t have much money saved
- You have someone who is financially dependent on you
- You have your own business with a business partner who would struggle in the event of your death
If you have bought a house with a mortgage, some mortgage providers will require you to have life insurance. This is because, if you die, your dependents might not be able to cover the repayments without your income. In a worst-case scenario, this could force them to sell the house and move.
How to take out a life insurance policy in Germany
To take out a life insurance policy in Germany, you need to decide what level of payout you would like your beneficiaries to receive in the event of your death. To calculate this, you’ll need to consider a few different factors, for instance:
- The outstanding balance on your mortgage
- The proportion of household income made up by your salary (so what the income shortfall would be, in the event of your death)
- How many children you have, and how much you would need to provide for them until they become independent
You’ll also need to specify the policy term. If you’re only going to be in Germany for a short time, you could opt for a short life insurance contract of just a few years. Otherwise, you should consider other factors, including:
- The length of time left on your mortgage
- The age of your children
Most commonly, term life insurance policies are taken out to cover the insured person so long as they have financial obligations like mortgage repayments or dependent children.
If you have 27 years left on your mortgage and a balance of 300.000 euros outstanding, for instance, you would want a life insurance policy that covers you until the mortgage is paid off, with a payout of 300.000 euros that would leave your dependents debt-free in the event of your death. If you have children, you might want a policy with a payout big enough to cover all of your household expenses until your children turn 18, or leave higher education and become financially independent.
When filling out a life insurance application form, as well as asking about the length and level of coverage you require, the insurer will ask you a lot of specific and comprehensive questions about your health and lifestyle. Some insurers might also ask you to see a doctor to have a health checkup done.
Optional extras to life insurance policy
You can usually add extras to a life insurance policy, for instance:
- The option to get an early payout if you get diagnosed with a terminal illness
- The option to prolong your contract term without having to have a new health checkup
- The option to increase the payout sum in the case of certain life events, such as the birth of a child
- The option to increase the payout sum each year, for instance to compensate for inflation
- The option to cease your payments if you become disabled or otherwise unable to work
How much does life insurance cost?
Like other types of insurance, the cost of a life insurance policy depends largely on the size of the payout you opt for, as well as the length of the contract, your health, and your age. Other personal factors come into play where they might increase the risk of you dying prematurely, for instance:
- If you smoke
- If you have a high BMI (body mass index)
- If you work in a dangerous job
- If you have any high-risk hobbies like motorcycling or skydiving
Some insurers might consider other factors, including your profession, your level of education, and the amount of time you spend in the office compared to working from home.
To keep your policy valid, you’ll need to continue paying your monthly premiums for the duration of your contract.
On average, depending on the insurance amount, the length of term, and your age, a life insurance premium can be as little as 3 euros per month.
Cancelling life insurance
If you have paid off your mortgage or your children are all grown up, you may find that you no longer need your life insurance policy. Most insurers will let you cancel your policy early, free of charge, but check with your insurer to be certain.