Term Life Insurance In Germany [2024 English Guide]

Key takeaways

• Everyone who wants to secure their family’s financial well-being needs term life insurance in Germany.
• Term life insurance pays the insured to your relative if you die.
• You don’t pay income tax on the term life insurance money you receive after the death of your relative. However, you must pay inheritance tax on it.
• You can avoid or reduce inheritance tax by taking the right term life insurance policy.

This is how you do it

• Determine how much money you want to insure. As a rule of thumb, you can take 3 to 5 times your gross annual salary plus any mortgage as the insured sum.
• Calculate the insured period. It should be long enough for your children to be independent and your mortgage to be paid off.
• Term life insurance is a simple product, and you can choose the policy that is cheaper for you. You can compare tariffs on the comparison portal Tarifcheck*. If you prefer English support, check Feather’s* life policy. 

Table of Contents

What is a life insurance policy in Germany?

A term life insurance policy (Ri­si­ko­le­bens­ver­si­che­rung) pays your relatives an agreed sum (insured amount) when you die. Don’t confuse term life insurance (Riskiolebensversicherung) with life insurance (Lebensversicherung) in Germany.

Term life insurance covers you for a fixed period. Life insurance, on the other hand, covers you for your entire life.

We find life insurance not worth it due to its low returns. Moreover, there are other better alternatives to life insurance, such as term life insurance, ETF savings plans, etc.

In this guide, we’ll use the terms “life insurance” and “term life insurance” interchangeably, but we always refer to “term life insurance.”

Who needs term life insurance in Germany? 

A term life insurance policy is worthwhile in the following situations.

You bought a property on credit

Buying a house in Germany is expensive. Usually, you take a mortgage to pay the property price.

If you have a mortgage and meet an untimely death, the real estate loan can become a financial burden for your partner. So, to protect your family’s financial well-being and to ensure they don’t have to sell the house, you should get term life insurance. 

The same applies to unmarried couples who have purchased a property together.

There is another option to secure loan payments in Germany. It’s by taking residual debt insurance.

However, residual debt insurance is not worth it as it’s expensive and offers poor benefits. You should get term life insurance instead.

Secure your family’s financial well-being

If you are the sole earner in your family, you should get a life insurance policy. This way, you don’t have to worry about your family’s financial security after you die.

Even if you and your partner earn, it makes sense to take term life insurance.  Being a single parent is tough. Your partner might have to reduce or limit their working hours to care for the child.

Moreover, widows’ and orphans’ pensions are usually significantly lower than your salary. With your income gone and your partner’s reduced net income, your family’s lifestyle is greatly affected.

Thus, you should get term life insurance to secure your family’s future.

Living together but not married

If you are not married, your partner will not receive the widow’s pension when you die. So, if you have children, term life insurance is particularly important.

Single parents

It’s critical for single parents to take out a life insurance policy. If the worst happens, their children will receive the insured sum.

If your child is a minor, you should mention the guardian in your policy. If you don’t, the court will name the guardian.

Your child won’t recieve the insured amount till a guardian is determined.

Best life insurance companies in Germany

Life insurance is a fairly simple insurance product. You can pick any policy that is cheaper for you.

This is because there are rarely any problems with the payment of benefits. Death is the clearest insured event imaginable. Even suicide is insured from three years after the conclusion of the contract.

You can compare life insurance tariffs on Tarifcheck*. If you prefer English customer service, check out the life insurance plan from Feather*. 

What should you consider when taking out life insurance in Germany?

Gross and net contributions

A life insurance policy has two prices: net and gross. The net premium is the price you’ll pay after taking the policy. The gross premium is the amount the insurance provider can charge if the company faces financial difficulties.

For example, if more people die or the company makes fewer profits on the capital market than expected.

The gross premium is higher than the net premium. The life insurance company can increase your premium up to gross premium. Thus, you should ensure that the gross premium is not too high. 

There are also life insurance providers who offer policies with guaranteed contributionsover the entire contract term.

Subsequent insurance guarantee (Nach­ver­si­che­rungs­ga­ran­tie)

Subsequent insurance guarantee allows you to increase the insured sum without health examination on certain events. The events when you can increase the insured sum are

• childbirth,
• marriage,
• and buying a property.

A subsequent insurance guarantee clause can be useful if you are young and unsure about having kids or buying a property.

Option to extend the contract term (Verlängerungsoption)

Suppose you want to extend your contract due to unexpected developments in your life. The option to extend the contract term will allow you to do so without a new health check.

NOTE: We find taking a long contract term better than short. This is because you can cancel the contract early if you don’t need it anymore.

Early death benefit (Vorgezogene Todesfall-Leistung)

Suppose you got seriously ill and will die within a few months. If you have a policy with an early death benefit clause, you can get part of the insurance money before your death. 

Minimum amount your life insurance should cover 

How much amount you should insure depends on the following factors

• Do you have a mortgage or any other loan?
• Do you have children?
• Does your partner work?
• What is your gross annual income?
• Other responsibilities

After your death, your spouse will recieve a widow’s pension, and children will receive an orphan’s pension. However, the pension is lower than your net salary.

You should check the gap between your net salary and pension. This is the gap you want to fill.

If this is too complicated, you can simply insure 5 times your gross annual salary plus liabilities like loans, mortgages, etc.

For example, your annual gross salary is 80,000 €, and you have a 200k € mortgage. In this case, you should get a life insurance policy with a 600,000 € (80k * 5 plus 200k) insured sum.

If you don’t have children, you can insure three times your gross annual salary plus liabilities.

Life insurance policy is getting too expensive

The higher the insured sum, the more expensive your term life insurance policy will be. You can reduce the insured sum if you think the policy is too expensive.

It’s better to have some protection than none. The insured amount (no matter how much) can help your grieving partner to cover some costs.

How long should the term life insurance contract last?

The length of the life insurance policy depends on your personal situation. Generally speaking, once you have paid off your loan and your children are independent, you don’t need the life insurance plan.

So, if you are 35 and have a 3-year-old child, an insurance period of 20 to 25 years will be sufficient. Of course, you can take a longer insurance period to be on the safer side.

NOTE: The longer the insurance period, the higher the life insurance cost.

You can cancel the life insurance policy or make it exempt from contributions if

• you repaid your mortgage
• and your kids are financially independent

How much does life insurance cost in Germany? 

A life insurance policy of 200,000 € insured sum costs between 100 € and 300 € per annum. However, the cost of life insurance in Germany depends on

• the insured sum,
• the contract period, and
• how high the risk of the insured person dying during the contract term

The higher the insured sum, contract period, and risk, the higher the insurance cost. 

The factors life insurance companies consider when determining the insured person’s risk are:

• age
• health status
• job
• overweight
• risky hobbies like motorcycling
• smoke

Every insurance provider evaluates the risk differently. Some may rate driving a motorcycle as high risk, and others don’t.

So, compare the insurance policies and find the one that is cheaper for you. 

NOTE: You should not lie when applying for a life insurance policy. It can create problems for your family when claiming the benefits.

Things to do after taking out life insurance in Germany

You must report changes in your health and life situation to the term life insurance provider. For example,

• Smoking: If you start or stop smoking, you should inform your insurer. The insurance company will then revise the insurance cost.
• Hobby: If you opt for a risky hobby, you should inform your life insurance provider. You should ask your insurer about whether a particular hobby is considered risky when in doubt.
• Divorce: If you divorce your partner, you must inform the insurer and update the beneficiary. 

Do you pay taxes when you receive the life insurance sum?

You don’t pay any income tax on the money you receive from the life insurance company after the death of your relative. However, inheritance tax will be due based on the relationship with the deceased. 

You can avoid or reduce inheritance tax by taking the right term life insurance plan.

Can you deduct life insurance contributions from taxes in Germany?

Yes, you can deduct life insurance contributions from your income tax return. However, the tax office limits the amount you can deduct.

The table below shows the maximum life insurance premium you can deduct.

	Single	Married
Employee	1900 €	3800 €
Self-employed	2800 €	5600 €

Suppose one partner is employed and another is self-employed. The limit in this case will be 4700 € (1900 € + 2800 €).

Read our guide on tax-deductible expenses to learn other ways to save taxes in Germany.

Types of term life insurance plan in Germany

There are three types of life insurance policies in Germany.

• Standard life insurance plan (Ri­si­ko­le­bens­ver­si­che­rung)
• Cross-term life insurance plan (Über-Kreuz-Versicherung)
• Linked life insurance policy (Verbundene Leben)

You must be aware of the following when taking a term life insurance plan:

• Inheritance tax, especially if you are not married
• Appointing a guardian when putting your children as beneficiaries

Standard life insurance plan

In a standard life insurance plan,

• you are the policyholder and insured person.
• your partner or children are the beneficiaries.

So, If you die, your partner will get the insured sum. 

A standard term life insurance plan is best for married couples. Both partners must get separate insurance policies. 

You should also add your children as beneficiaries. If the worst happens and both parents die, the children will get the insurance benefits.

Do you have to pay inheritance tax on the insured sum?

Inheritance tax is due when you get the insurance money. However, for married couples, the inheritance tax allowance is 500,000 €. So, if your insured sum is less than 500k, you don’t pay any inheritance tax.

However, if your insured sum is higher than 500k, you should take cross-term life insurance (Über-Kreuz-Versicherung) as explained next.

What happens if you divorce?

If you divorce, you can change the beneficiary to your children or new partner.

Cross term life insurance (Über-Kreuz-Versicherung)

In a cross life insurance plan,

• you are the insured person.
• your partner is the policyholder and beneficiary.

Both married and unmarried couples can take this policy.

Do you pay inheritance tax?

As you are the policyholder, you don’t pay inheritance tax on the insurance money you receive after your partner dies.

The inheritance tax allowance for unmarried couples is only 20,000€. Thus, the cross-life insurance policy is very attractive for unmarried couples.

NOTE: You and your partner don’t necessarily have to take a life insurance plan from the same provider.

How does cross-life insurance differ from simple life insurance?

	Standard life insurance	Cross life insurance
Policyholder (One who takes out the policy and pays monthly premium)	You	Your partner
Insured person (Person who is insured. Insurance company gives money to the beneficiary if the insured person dies)	You	You
Beneficiary (Person who receives the insured sum when the insured person dies)	Your partner	Your partner

Example

Suppose Andi and Teresa are couples (married or unmarried) and want to take out term life insurance. The standard and cross-life insurance policies will look like this. 

Andi wants to secure Teresa’s financial well-being if he dies.

	Standard term life insurance	Cross-term life insurance
Policyholder	Andi	Teresa
Insured person	Andi	Andi
Beneficiary	Teresa	Teresa

As you can see, in standard insurance, Andi is the policyholder and pays the premiums. If he dies, Teresa will receive the insured sum.

However, in cross-insurance, Teresa takes the term life insurance policy and pays the premiums. If Andi dies, she will get the insured sum. This way, Teresa avoids paying inheritance tax.

NOTE: It’s critical in cross-life insurance that the policyholder pays the insurance premium from their account and not the joint account. This avoids unnecessary complications with the tax office later. In our example, Teresa (policyholder) must pay the premiums from her account. 

Similarly, Teresa wants to secure Andi’s financial well-being if she dies.

	Standard term life insurance	Cross-term life insurance
Policyholder	Teresa	Andi
Insured person	Teresa	Teresa
Beneficiary	Andi	Andi

In this case, Andi (policyholder) must pay the cross-life insurance premium from his bank account.

What happens if you separate?

If you separate, you must convert your cross-life insurance contracts into standard ones. This means you transfer your contract to your partner and vice versa.

Once your partner is the policyholder and insured person, they can decide whom to name as beneficiary.

Let’s continue with the above example. Andi and Teresa want to separate. Andi will transfer his cross-term contract to Teresa. 

This way, Teresa will be the policyholder and insured person. She can then remove Andi as the beneficiary and add someone else.

	Cross-term life insurance (Before separation)	Life insurance (after separation)
Policyholder	Andi	Teresa (Andi transferred the policy to Teresa)
Insured person	Teresa	Teresa
Beneficiary	Andi	Andi (Teresa can change the beneficiary)

NOTE: The transfer of the insurance policy can only happen with the consent of both partners.

Linked life insurance policy (Verbundene Leben)

In linked life insurance, the couples take the life insurance policy together. If any of the partners dies, the surviving partner gets the insured sum.

In linked life insurance, you need only one insurance contract instead of two separate policies. This makes a linked life insurance policy cheaper. Additionally, there are tax benefits. 

Couples without children can benefit from a linked life insurance policy (Verbundene Leben).

NOTE: The insurance benefits will be paid out only once. Even if both couples die at the same time.

Do you pay inheritance tax?

As both partners are equal policyholders, 50% of the insured sum is tax-free. You pay inheritance tax on the remaining 50%.

Suppose a married couple took a linked life insurance policy of 800k €. The surviving partner will pay inheritance tax on only 50% of the insured sum, i.e., 400k€.

After deducting the inheritance tax allowance of 500k €, the serving partner pays no inheritance tax.

What happens if you separate?

If you separate, you must cancel the life insurance policy. You cannot split the policy into two different policies.

Types of life insurance policy based on insured sum

There are three types of life insurance policies based on the insured sum.

• Constant insured sum: The insured sum remains the same throughout the contract term.
• Increasing insured sum: The insured sum will increase every year, as will your insurance premium.
• Decreasing insured sum: The insured sum and your premium decrease each year.

Term life insurance policy that has an increasing insured sum

The value of money is decreasing each year due to inflation. So, the sum you insure today will be worth less after 10 or 20 years.

To tackle this problem, life insurance providers offer a policy whose insured sum increases each year. However, you don’t necessarily need this type of insurance policy for the following reasons.

• With time, your children will grow older, move out, and start earning their own income.
• Your partner can also focus on their career, as children won’t need much attention. 
• Your loan amount will decrease over time.

The need for life insurance will decrease over time, so you should check if you really need such a policy.

Term life insurance policy that has a decreasing insured sum

In contrast to increasing the insured sum, life insurance companies also offer policies that decrease the insured sum. As we said before, your liabilities will reduce, and your family income will increase over time.

Thus, getting a decreasing insured sum contract makes sense. Moreover, this type of life insurance policy is the cheapest.

There are two types of decreasing insured sum

• Annuity-like falling insurance sum: In this case, your insured sum will decrease with your loan. This means if you have paid off 20,000 € of your loan, then the insured amount will also decrease by 20,000 €.
• Linearly decreasing insurance sum: The insured sum will decrease by an agreed fixed amount every year.

Conclusion

We find taking a constant insurance sum life insurance policy better than others. This is because the purpose of getting a life insurance policy is not only to cover your loan but also to protect your family. 

Moreover, if you think the insured sum is too high or too low in the future, you can simply change it. 

How do you get cheap term life insurance if you are a high-risk individual?

Life insurance providers in Germany calculate your premium based on your risk profile. If you are a high-risk customer, the life insurer may reject your application or charge you high premiums.

The following factors affect your risk profile.

• Age
• Health – Are you overweight? Do you have existing health problems, etc?
• Do you smoke?
• Are you involved in high-risk activities, such as motorcycle

If you are a high-risk individual, you should consult an insurance broker to help you find offers from different insurance companies.

NOTE: You should be careful when requesting offers from insurance companies yourself. It’s because the insurer can report you as a high-risk customer to HIS.

HIS is a central database for German insurers. It’s similar to Schufa. Once you’re listed as a high-risk individual in HIS, finding any type of insurance will be difficult.

How do you claim term life insurance benefits?

• You must inform the life insurance company within 3 days after the death of your relative.
• The insurance company requires the following documents to transfer the insured sum.
  • Sterbeurkunde
  • Totenschein
• Once the life insurer has all the documents, they transfer the insured sum within a few days to weeks.

How do you get Totenschein in Germany?

The treating doctor or hospital issues the Totenschein. You need it to get the Sterbeurkunde.

How do you get Sterbeurkunde in Germany?

You must contact the registry office (Standesamt) in the municipality where your relative died. Some German federal states also offer services to apply for the Sterbeurkunde online.

You need the following documents to apply for the Sterbeurkunde.

• Totenschein
• personal identity card of the deceased,
• the birth certificate of the deceased, and
• your marriage certificate (if necessary).

References:

• https://www.haufe.de/finance/haufe-finance-office-premium/erbschaftsteuer-lebensversicherung-24-verbundene-lebensversicherung_idesk_PI20354_HI2958725.html
• https://www.finanztip.de/risikolebensversicherung/
• https://www.gdv.de/gdv/themen/schaden-unfall/das-hinweis-und-informationssystem-his-der-versicherungswirtschaft-22256
• https://service.berlin.de/dienstleistung/318990/
• https://www.allianz.de/vorsorge/risikolebensversicherung/steuern/