Investment & Wealth
Disability Insurance
occupational disability for self-employed
Disability insurance for the self-employed: Securing financial existence and minimizing risks
One in four working individuals in Germany becomes unable to work, yet many self-employed people underestimate this existential risk. Discover how an occupational disability insurance for the self-employed can protect your financial future and what you need to pay attention to.
The topic in brief and concise terms
For self-employed individuals, a private occupational disability insurance is essential, as they usually have no claim to state incapacity benefits and these often do not suffice. [4,6]
As a self-employed individual, pay special attention to fair reorganisation clauses and the waiver of abstract reference in the occupational disability contract. [1.5]
The disability insurance pension should cover approximately 70-75 percent of your net income; take out the insurance early to save costs. [1,4]
Risk of Occupational Disability: The Underestimated Threat for the Self-Employed
Many self-employed individuals have a false sense of security when it comes to the risk of occupational disability. Statistics show that about one in four workers becomes occupationally disabled during their working life. [3,4] For the self-employed, the financial consequences are often more severe than for employees. They generally have no or very limited entitlement to statutory disability pensions. [4,6] Without private provisions, there is a real threat of financial ruin and loss of the established standard of living in the event of occupational disability. A suitable occupational disability insurance is therefore essential. The most common causes are mental illnesses like burnout or depression, accounting for over 30 percent. [4] This highlights that not only physically demanding professions are affected.
Securing one’s own workforce should therefore be a top priority for every self-employed person. Even a short-term absence of a few months can lead to significant financial difficulties without proper savings or insurance. Consider that ongoing expenses such as rent, health insurance, and personal expenditures continue in the event of illness. An early engagement with the subject of occupational disability for the self-employed is therefore imperative. The next section highlights the specific benefits of such coverage.
Maximising Benefits: Why Disability Insurance is Essential for the Self-Employed
A disability insurance offers self-employed individuals significant advantages for their financial stability. The most important aspect is the payment of a monthly pension if the profession can no longer be performed at least 50 percent. [2,3] This pension helps to secure living expenses and cover ongoing costs. [2] Unlike the statutory reduced earning capacity pension, which often only applies when no work can be performed at all, private disability insurance covers the last profession exercised. [6] For self-employed people who often do not pay into the statutory pension scheme, this is a fundamental protection. [4] Another advantage is the tax deductibility of the contributions as other provident expenses, up to a maximum of 2,800 euros annually for the self-employed. [1] Contributions to the disability insurance are therefore money well invested. The flexibility of many tariffs also allows for adjustments to changing life circumstances, for example through follow-up insurance guarantees without renewed health checks. [5] This ensures that protection remains adequate even with increasing income or starting a family. The exact terms and conditions are crucial, as explained below.
Understanding contract details: Optimising key clauses for freelancers
Certain clauses in the occupational disability (BU) insurance contract are particularly important for self-employed professionals to ensure optimal protection in the event of a claim. A central role is played by the reorganization clause. [1,5] This clause determines whether and under what conditions the insurer can require you to reorganize your business in order to continue working. Good policies waive the reorganization assessment if it is economically unreasonable or if profits would decrease by more than 20 percent. [5] Make sure that reorganization can only be requested if you have fewer than five employees or if you have an academic education and carry out over 90 percent administrative activities. [1,4] Equally important is the waiver of the abstract referral clause. [5] This prevents the insurer from referring you to another, theoretically possible profession that you are still capable of performing health-wise. An occupational disability insurance for self-employed people should always include this waiver. Other important aspects are:
Forecast period: Benefits should be provided when an occupational disability is medically predicted to last six months. [2]
Retroactive benefit: The insurance should also pay if the occupational disability is reported late, retroactively from inception. [1]
Guaranteed insurability: This enables the increase of the pension without a new health check upon certain events (e.g. marriage, income increase). [3,5]
Premium dynamics: This ensures an inflation adjustment of the pension, with contributions and benefits increasing annually by an agreed percentage. [5]
Our expert tip: Examine the reorganization conditions very carefully, as this clause can often lead to disputes. A clear and favourable regulation for you is invaluable here. The right pension amount is another crucial factor.
Need-based coverage: Calculating the correct disability pension amount for self-employed individuals
Determining the correct amount for occupational disability insurance is a crucial step for the self-employed. As a rule of thumb, the disability pension should cover about 70 to 75 percent of the current net income to maintain the standard of living. A pension set too low can lead to financial difficulties despite the insurance in the event of a claim. When calculating, consider all ongoing expenses, both private and business-related, that will continue in case of disability. These include rent or real estate financing, health insurance contributions, retirement savings contributions, and living expenses. Also consider potential additional costs due to disability, such as medical treatments or renovations. Early planning of the disability pension is important. It is advisable not to set the pension below 1,500 Euros, otherwise there is a risk of offsetting against state basic security benefits in the event of a claim. Our expert tip: Plan generously and use increase options to adjust the pension later on to a higher income without a new health check. The cost of insurance depends on various factors, which we will now examine.
Alternatives and Supplements: Review further security options for freelancers
Although disability insurance is considered the most comprehensive protection, there are situations where the self-employed seek alternatives or supplements. This can be the case if disability insurance is unavailable due to pre-existing conditions or a very high-risk occupation, or only available at very high costs. [1,3] A possible alternative is the incapacity insurance. It provides benefits if you are unable to engage in any activity for more than three hours a day but is often more affordable. [1,4] The basic ability insurance covers the loss of certain fundamental physical or mental abilities, such as seeing, speaking, or using your hands. [2,2] It can be an option, especially for self-employed individuals engaged in physical work, if disability insurance is not possible. [2] Another option is the critical illness insurance (severe illness provision), which pays out a lump sum upon diagnosis of certain serious illnesses. [4,5] For short-term incapacity to work, a daily sickness allowance insurance is essential, as disability insurance typically does not pay out until after six months. [2,3] Accident insurance offers financial protection in the event of disability due to an accident but does not cover illnesses. [2,1] However, it can be a sensible addition, especially if there is no statutory accident insurance. [1] Our expert tip: Carefully check which risks each alternative covers and whether it meets your individual needs as a self-employed person. Often, a combination of different insurances makes sense to achieve the most complete protection possible. The legal framework conditions must also be observed.
Understanding the legal framework and tax aspects for self-employed individuals
Self-employed individuals are subject to specific legal and tax frameworks with regard to disability insurance. An important point is that most self-employed people do not pay into the statutory pension scheme and therefore have no or very little entitlement to the state incapacity pension. [4,6] This would only be paid if one can engage in any occupation for less than three hours a day. [5] Private disability insurance closes this gap. Contributions to independent disability insurance (SBU) can be claimed for tax purposes as other precautionary expenses. [1,1] The maximum amount for the self-employed is 2,800 euros per year. [1,1] In the event of a benefit, the paid-out disability pension must be taxed, but only with the so-called profit portion. [2] The amount of the profit portion depends on the age at the start of the pension and the duration of the pension; for example, it is 18 percent of the annual pension if the remaining term is 17 years. [2] It is advisable to seek tax advice on this. An understanding of the differences between incapacity for work pensions is important for the self-employed. Pay attention to the exact definition of disability in the contract: It usually applies if the last occupation can no longer be carried out for at least 50 percent, for an expected minimum period of six months. [2,1] Careful selection of the provider and tariff is crucial.
Expert tips: Finding the optimal disability insurance for self-employed individuals and avoiding pitfalls
Choosing the right occupational disability insurance requires careful research and consideration of some expert tips. Don't just compare prices, but, most importantly, the insurance conditions and the clauses contained within them. [1] Pay attention to the previously mentioned waiver of abstract referral and a fair reorganization clause. [5,1] Another important point is the health examination: Answer all health questions truthfully and completely to avoid jeopardizing your coverage. [4,1] If in doubt, obtain information from your doctors about your medical records for the past five to ten years. [4] Our expert tip: Seek support from an independent insurance broker or specialized advisor. They know the market and can help you find a plan that is optimally tailored to your needs as a self-employed individual. [5,2] You should also consider the following points:
Start securing yourself early; the younger and healthier you are, the cheaper the premiums. [3,4]
Choose a contract term that is long enough, ideally until the age of 67. [1,1]
Examine options for premium deferral or exemption in times of financial difficulty, which can be particularly important for the self-employed. [2]
Look for customer-friendly regulations in the event of a claim, such as quick and straightforward assistance.
Inform yourself about the financial strength and litigation rate of the insurer.
A well-chosen occupational disability insurance is an investment in your financial security. Take the time to make an informed decision. Now let's summarise the most important points.
Recommended Action: Your Next Steps to Secure Occupational Disability Insurance
Disability insurance is not an option for the self-employed, but a necessity. The risk of losing your ability to work is real, and the financial consequences can be life-threatening. [3,4] Begin with an honest analysis of your current situation and needs. What are your monthly expenses? What standard of living do you wish to maintain in the event of a disability? Use these considerations as the basis for determining your required disability income, which should be at least 70 percent of your net income. [1] Thoroughly research the various offerings and pay particular attention to the contract conditions, especially clauses such as the reorganisation requirement and the waiver of abstract referral. [1,5] Taking out disability insurance should be done as early as possible to benefit from lower premiums and a hassle-free health check. [3,4] An occupational ability insurance can be a supplement but does not replace disability insurance. Do not hesitate to seek professional support. Independent advice will help you find the right protection for your individual situation as a self-employed person and avoid pitfalls. [5] Your ability to work is your most important asset – protect it accordingly.
Request your individual risk analysis now: Have your insurance situation checked free of charge and receive specific optimisation suggestions.
More useful links
Deutsche Rentenversicherung offers comprehensive information on pension insurance for the self-employed.
The BMWK's Start-up Portal explains the specifics of disability pension for the self-employed.
Destatis (Federal Statistical Office) provides current statistics on solo self-employment in Germany.
The Deutsche Rentenversicherung provides detailed statistics and reports on the development of disability pensions.
The Consumer Advice Centre informs how you can protect yourself against loss of income with disability insurance.
The Federal Ministry of Labour and Social Affairs (BMAS) offers an official definition of the term disability.
FAQ
Am I not covered by statutory pension insurance as a self-employed person?
Most self-employed individuals do not pay into the statutory pension insurance and therefore have no or only a very small entitlement to disability pensions. [4,6] This only pays out if you can no longer pursue any work. [5]
What happens if I become occupationally disabled as a self-employed person and do not have disability insurance?
Without disability insurance, you would have to live off your savings or apply for state basic security (citizen's income), which often involves significant financial cutbacks. [3,2]
Does occupational disability insurance also cover mental illnesses?
Yes, mental illnesses such as depression or burnout are now the most common cause of occupational disability and are generally covered. [4,2] Ensure that this is not excluded in the contract.
Can I deduct disability insurance contributions from my taxes?
Yes, self-employed individuals can claim contributions to disability insurance as other preventative expenses up to a maximum amount of 2,800 euros annually for tax purposes. [1,1]
What is the difference between occupational disability insurance and incapacity insurance?
Occupational disability insurance pays if you can no longer perform at least 50 percent of the activities required in your most recent job. [2] Incapacity insurance usually only pays if you can engage in no activity for more than three hours a day. [4,2]
Should I take out disability insurance even if I am still young and healthy?
Yes, definitely. The younger and healthier you are, the cheaper the contributions and the easier the health screening. [1,4] The risk of disability exists at any age. [4]
