Is disability insurance worth the premiums?

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Dear TT,

 

An insurance company recently made me an offer through my employer to obtain private disability insurance. The advertising brochure struck a cord in me as some of the info in it was really news to me.

 

I was under the impression that in the unfortunate case of one becoming disabled to work, the health insurance (KV) or pension insurance (RV) system would provide the person with a decent benefit package to maintain one's income level to a certain extent. I think I had read once that coverage for sickness was by law around 60% of one's salary. However, it seems that I was wrong, and that the coverage provided by the system fluctuates between 15% to 30% of one's last salary depending on the degree of disability. Thus, the need for private disability insurance (Berufunfähigkeitsversicherung, BV).

 

I did some research on the plan being offered, but found the monthly premiums to be rather expensive for the coverage offered. Approximately, I would have to pay in annual premium about 10% of the covered sum (about €100 per month for coverage of €1000 per month).

 

I was hoping some of you could give me some advice regarding your experience with this kind of insurance and the kind of things to pay attention in the small print. Are there other insurance types that would be similar in nature but not so expensive? Can you recommend an insurance company in particular?

 

Thank you in advance for your feedback and advice!

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Dear Strakurinn!

 

First point: everybody thinks their insurance premium is too high! Actually, I got today in the post my reminder for my Haftpflicht insurance for the next year..and I thought..Jeez, I forgot to cancel and switch. My fault. What I now recommend is a better deal.

 

Anyway, you need to consider many points:

How long are you planning to stay in Germany?

 

That, by the way, is a major point! Why? Because you´re here! The world has changed ( people like yourself , probably highly educated ), and you may be in another country in 1 year´s time or five! That makes a difference in your plans.

 

So, what are your plans?

 

In general, we all need to think about the worst case scenario...car crash, cancer, heart attack..do I have a family? What if?

It´s not the insurance company per se...but YOU.

I am a professional independent insurance broker and authorised advertiser. Contact me.
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My husband has it and yes, we think the premiums are extremely high (compared to same cover in the US. But in the US, it's generally linked to employment and lost with change in employment). Part of the issue is there is no way to remove "Kreislauf" or "burn out" coverage and apparently Germans, as stressig as they find life, are prone to it.

But we thought it was a vital part of family financial planning. The time to get it is, of course, when young (ish) and very healthy and when you are certain you won't need it.

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Three points to your question here:

 

1. yes, it is one of the three main and important insurances for everyone in Germany - just read any info from the consumer protection agency (Verbraucherschutzverband) in Germany or the Stiftung Warentest about what insurances you need and what not and this will be allways among the top three. Reasons are that you have a 1:4 chance in the next 20-30 years to really need this insurance to help you out in times when thru an accident or illness (the latter being much more likely statistically than the first) prevents you from earning income for considerable time. In other countries - Scandinavian comes to mind, for instance - the governement is actually offering some basic coverage of sorts...but not in Germany. Only if you would become "Erwerbsunfähig" - which means you can't work in any capacity at all for at least 3 hours a day - will the German state pay you a monthly pittance.

You have to think about it as asset protection: just take your current yearly salary, for once forget about inflation and increase in pay/promotion and just take this yearly salary times the years you'll have to work til retirement: that is easily an amount close to a million EUR for sure. And this is probably your biggest financial asset right now, the ability to generate this income thru work. Now if you had a house, car and jewells in the value of a million EUR or more: would you set up an insurance to cover them against destruction, theft, loss? Of course you would! Same rational applies to your ability to generate income thru your work.

2. You have received a quote from an insurance AGENT. That is always a bad move in a situation like yours. Because the agent is representing the interests of the insurance company, not yours, and can only offer you what his insurance company has as products, be that good or bad. Especially for an important insurance like this you need independent advice from a broker. The price and coverage quality of these insurances differs vastly and you should get someone on your side to find the most suitable for you

3. While obvious the price for such an insurance must be affordable for you, it is still second in priority: what matters most is what kind of coverage you get for your money. Especially with occupational disablity insurance what matters most is to know the details of the Ts&Cs to make sure that when the proverbial shit hits the fan you actually get the pension paid out during your time of disablity and are not left hanging out to dry. This, too, is why you need an independent broker for this.

 

Finally: currently the premiums for this insurance cannot written off from your taxes - ever since a change in law in 2010 (Bürgerentlastungsgesetz). But if you have also not fully set up tax optimized pension plans for yourself, there are ways to combine the BU with a RÜRUP pension and thus write off your contributions for BU, too, just like your pension plan contributions and thus safe taxes for the money you pay for coverage. that should ease the burden a bit. Also, if you reduce the coverage period for the most important/productive part of your life only, say til age 59 (for a standalone BU, for a combined with RÜRUP I think you have to go til age 62) instead of end-age 67, premiums will drop dramatically and perhaps be more affordable to you.

 

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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I think my own opinion is that the premiums are quite high, but can be reasonable considering the coverage, depending on your personal circumstances. You have to consider that if something does happen, the insurance will be paying out a very large amount of money in total, as they will be covering your "salary" for several years.

 

In my own case I opted not to when the final quote turned out to be a significant amount more than the early ones, due to some specific personal details. I was already on the fence and that pushed me to not taking the insurance (I still feel a bit bad about wasting my time and that of the broker's, but I don't think it was anyone's fault in that case and it was basically a sunken cost). I'm also don't know if I'm staying in Germany long-term, which mattered.

 

The premiums are based on statistics (and the insurance companies tack on some profit on top, but that is business). If you are an outlier, you will either benefit a bunch or be penalised a bunch. In my case I really felt that I was far more safe from disability than what the statistics (and the premium) reflected.

 

In summary, I agree with Starshollow first point, but you have to consider the following: the premiums on insuring houses and other similar assets are comparatively lower, conversely that presumably means your "salary asset" is also at an increased risk. Take both aspects seriously - your own risk and the high premium, and try to make the best decision.

 

Ivo.

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There is another issue here: not everyone can actually get BU cover. Obviously, some can´t for existing health reasons but there are other problems: a BU contract is by definition usually long term but not all have a long term visa - so what for example should an American do on a 3 year permit? As far as I know, no German insurance company will take you without a pretty long visa.

Another aspect: some jobs are not easily insurable within a BU policy...it´s very difficult to find a BU insurance for a freelance English teacher ( the Germans want to associate them with Beamte!!) or an artist, singer ( insurance reaction here is often: maybe they´ll put a claim in because they´ve run out of creative inspiration! ).

 

For many a BU policy is right..for others, it´s essential to look at alternatives, including Critical Illness ( really especially but not only for self-employed who may need a fairly fast lump sum to keep their business going ) and for those with restricted visas a yearly policy not dependent on their visa status and covering accidents and major illnesses as a combination.

 

Basically, you need to compare the different types of policy available and make an informed decision based on that.

I am a professional independent insurance broker and authorised advertiser. Contact me.
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I think you should look at somebody's profession as well, e.g. office worker or construction worker/roadman. Also, check if critical diseases like heart stroke are common among your entire family or not. One German colleague signed for example an accident insurance (Unfallversicherung) instead of an expensive BU-insurance. The premiums are much lower and he pays around €250 per annum. The pay-out is a high lumpsum. Could be an alternative in your case.

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You should be talking to someone at the Verbraucherzentrale. If you don't speak German then find someone who can to go along. They will offer you a lot of advice and help you make decisions impartially. You might be surprised to find decent insurance at a lower quote. It costs about €50 if I remember right, but it is worth it.

 

I see you are in Madrid. I don't know of a Madrid, Germany, so I will assume you are in Spain working for a German company, in which case I can't tell you if there is somewhere like the Verbraucherzentrale to go to.

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Thank you to all of you who took the time to give me feedback. I appreciate it.

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I think you should look at somebody's profession as well, e.g. office worker or construction worker/roadman. Also, check if critical diseases like heart stroke are common among your entire family or not. One German colleague signed for example an accident insurance (Unfallversicherung) instead of an expensive BU-insurance. The premiums are much lower and he pays around €250 per annum. The pay-out is a high lumpsum. Could be an alternative in your case.

 

You are right, in my opinion, Luke, that a profession is important..and the dangers involved...and that family health background is important..and I reckon an accident insurance is important and, yes, not expensive...but that depends on what´s in it. That is all true.

However, as you say, heart disease and strokes et al happen..how would an accident insurance help? (ok, there are grey areas here..did the accident happen during a heart attack? )

 

Your colleague: great..pays 250 euros a year..so what next if he has a heart attack?

 

As someone wrote to me today or yesterday..not sure. " I have a private accident insurance and I´ve realised it only covers me for accidents..." Yep.

 

By the way, BU insurance is one of the insurances most contested in claims by insurance companies..that´s where a legal insurance/Rechtsschutzversicherung is useful - make sure you have it in a different place from your other insurances.

I am a professional independent insurance broker and authorised advertiser. Contact me.
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I have to admit that I didn't read every reply on your post, as I have focus problems. I can only tell you about my experience. unfortunatly sickness comes unexpectedly. When I bought my house and was planning my future, the thought of having cancer didn't cross my mind. I am now on disibility pension, and I can tell you that the amount I receive per month covers only my health insurance, ok, I have to be honest, I have the luxury of having 30.00 extra euros to spend per month. This is a matter to take seriously, I wish I had.

 

I have other issues that applies only to Canadians, if there are any canadians in this situation, I will be glad to reply.

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If you ended up with a disability and you had this insurance which paid out, let's say, 2 grand a month, would that then affect the benefits that you'd get from the state? Like would you lose out on your Hartz IV (or whatever they call it when you're disabled) because you have this other income?

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This doesn't seem to be talked about anywhere else, I think it's because more people are concerned with sick leave rather than disability, but what long term coverage does one get if you are disabled. From what I remember in briefly discussing with my insurance guy is it's based on some type of percentage and you don't get a lot on public.

 

I'd be curious to know how many German bread winners pay for disability as it's quite expensive.

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