Disability insurance for self-employed individuals: Secure financial existence and minimize risks
16 Apr 2025
7
Minutes
Katrin Straub
CEO at nextsure
One in four working individuals in Germany becomes unable to work, yet many self-employed people underestimate this existential risk. [3,4] Discover how disability insurance for the self-employed can protect your financial future and what you need to be aware of.
The topic in brief and concise terms
For self-employed individuals, private disability insurance is essential as there is often no entitlement to state disability pension, and it is often not sufficient. [4,6]
As a freelancer, pay special attention to fair reorganization clauses and the waiver of abstract reference in the disability insurance 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 danger for the self-employed
Many self-employed individuals are lulled into a false sense of security when it comes to the risk of occupational disability. Statistics show that about one in four working people becomes unable to work during their career. [3,4] For the self-employed, the financial consequences are often more severe than for employees. They usually do not qualify for the statutory reduced earning capacity pension or only to a very limited extent. [4,6] Without private provision, occupational disability can quickly lead to financial ruin and the loss of the established standard of living. An appropriate occupational disability insurance is therefore essential. The most common causes are mental illnesses such as burnout or depression, accounting for over 30 percent. [4] This highlights that not only physically demanding professions are affected.
Securing your own ability to work should therefore be a top priority for every self-employed person. Even a few months of absence can lead to significant financial difficulties without adequate reserves or insurance. Consider that ongoing expenses such as rent, health insurance, and personal expenditures continue even in the event of illness. Early engagement with the topic of occupational disability for the self-employed is therefore essential. The next section explores the specific advantages of such a safeguard.
Maximize benefits: Why disability insurance is essential for the self-employed
A disability insurance policy offers self-employed individuals crucial advantages for their financial stability. The most important aspect is the payment of a monthly pension if the profession can no longer be practised by at least 50 percent. [2,3] This pension helps to secure living expenses and cover ongoing costs. [2] Unlike the statutory disability pension, which often only applies if no work can be carried out at all, private occupational disability insurance protects the most recently practised profession. [6] For self-employed individuals, who often do not pay into the statutory pension insurance, this is a fundamental protection. [4] Another advantage is the tax-deductibility of contributions as other precautionary expenses, up to a maximum of 2,800 euros annually for self-employed individuals. [1] The contributions to the disability insurance are therefore money well invested. The flexibility of many tariffs also allows adjustments to changing life circumstances, for example through follow-up insurance guarantees without a renewed health check. [5] This ensures that the protection remains adequate even with increasing income or starting a family. The exact contractual terms are crucial, as will be explained below.
Understanding contract details: Optimizing important clauses for freelancers
For self-employed individuals, certain clauses in the disability insurance contract are of particular significance to ensure optimal protection in the event of a claim. A central role is played by the reorganisation clause. [1,5] This governs whether and under what conditions the insurer can demand that you reorganise your business to continue working. Good policies waive a reorganisation assessment if it is economically unreasonable or if the profit would decrease by more than 20 percent. [5] Make sure that reorganisation can only be required if you have fewer than five employees or have an academic education and perform administrative tasks over 90 percent of the time. [1,4] The waiver of the abstract referral is equally important. [5] This prevents the insurer from referring you to another, theoretically possible occupation that you could still perform from a health standpoint. A disability insurance for self-employed individuals should always include this waiver. Other important aspects are:
Prognosis period: Benefits should already be provided in the event of a medically projected disability of six months. [2]
Retrospective benefits: The insurance should provide cover even if the disability is reported late, retrospectively from the onset. [1]
Guaranteed future insurability: This allows an increase in the annuity without a renewed health examination on certain occasions (e.g., marriage, income increase). [3,5]
Contribution dynamics: These ensure inflation adjustment of the annuity by annually increasing contributions and benefits by an agreed percentage. [5]
Our expert tip: Check the reorganisation conditions very carefully, as this clause often leads to disputes. A clear and advantageous arrangement for you is invaluable. The correct level of annuity is another crucial factor.
Adequate coverage: Calculating the right disability pension amount for self-employed individuals
Determining the correct amount of disability pension 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. [1,5] A pension set too low can lead to financial shortages in the event of disability despite the insurance. When calculating, consider all ongoing costs, both private and business, that will continue in case of occupational disability. These include rent or property financing, health insurance contributions, pension contributions, and living expenses. Also, think about possible additional costs due to the disability, such as medical treatments or renovations. An early planning of the disability pension is important. It is advisable not to set the pension amount below 1,500 euros, otherwise there may be a risk of offsetting with state basic security benefits. [1] Our expert tip: Calculate generously and use insurance top-up guarantees to adjust the pension to a higher income later without a renewed health check. [3] The cost of insurance depends on various factors, which we will now consider.
Cost factors in focus: Contributions to occupational disability insurance for the self-employed
The cost of disability insurance for self-employed individuals is determined by several factors. Your occupation and the associated risk group play a significant role; higher-risk activities result in higher premiums. [1,1] Your entry age is also crucial: the younger and healthier you are when you take out the policy, the lower the premiums typically are. [1,3] Pre-existing conditions can lead to risk surcharges, exclusions of benefits, or even rejection of the application, hence it is essential to answer the health questions honestly and fully. [1,1] The amount of the insured disability pension directly affects the premium – a higher pension means higher costs. [1] The agreed contract term, ideally up to the age of 67 to avoid gaps in coverage, also impacts the premium. [1,1] Other factors include smoking status and dangerous hobbies. [2,4] It is important to focus not only on the price but above all on the value for money and the quality of the insurance conditions. An affordable disability insurance can become costly in the event of a claim if important clauses are missing or unfavourably worded. Therefore, carefully consider which benefits are indispensable for your individual situation as a self-employed person. Sometimes there are also alternatives to consider.
Alternatives and additions: Exploring further security options for the self-employed
Although occupational disability insurance is considered the most comprehensive protection, there are situations where self-employed individuals look for alternatives or supplements. This can happen if a disability insurance is not available or only at very high costs due to pre-existing conditions or a very high-risk occupation. [1,3] A possible alternative is disability insurance. It provides benefits if you can no longer pursue any activity for more than three hours a day, but is often cheaper. [1,4] The basic abilities insurance covers the loss of certain fundamental physical or mental capabilities, such as seeing, speaking, or using your hands. [2,2] It can be an option, especially for physically active self-employed individuals, when disability insurance is not possible. [2] Another option is the dread disease insurance (Critical Illness Cover), which provides a lump sum payment upon diagnosis of certain severe illnesses. [4,5] For short-term incapacity for work, daily sickness benefit insurance is essential, as disability insurance usually only pays out 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 supplement, especially if no statutory accident insurance exists. [1] Our expert tip: Carefully check which risks the respective alternative covers and whether it meets your individual needs as a self-employed person. It is often advisable to combine various types of insurance to achieve the most comprehensive protection possible. The legal framework should also be considered.
Understanding the legal parameters and tax aspects for freelancers
Self-employed individuals are subject to specific legal and tax regulations regarding disability insurance. An important point is that most self-employed people do not contribute to the statutory pension insurance and therefore have no or only a very small claim to the state disability 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 bridges this gap. Contributions to independent disability insurance (SBU) can be claimed as other preventive expenses for tax purposes. [1,1] The maximum amount for the self-employed is 2,800 euros per year. [1,1] In the event of a claim, the paid-out disability pension must be taxed, although only at the so-called earnings portion. [2] The amount of the earnings portion depends on the age at the start of the pension and the duration of the pension; for example, with a remaining term of 17 years, it amounts to 18 percent of the annual pension. [2] It is advisable to seek tax advice on this. Self-employed individuals must understand the differences from the incapacity pension. Pay attention to the precise definition of disability in the contract: generally, it occurs if the most recently practiced profession can no longer be performed to at least 50 percent for an expected minimum of six months. [2,1] Careful selection of the provider and tariff is crucial.
Expert tips: Finding the optimal disability insurance for the self-employed and avoiding pitfalls
Recommended Action: Your Next Steps for Securing Against Occupational Disability
More useful links
Deutsche Rentenversicherung provides comprehensive information on pension insurance for the self-employed.
The BMWK's Start-up Portal explains the specifics of reduced earning capacity pensions for self-employed individuals.
Destatis (Federal Statistical Office) provides current statistics on solo self-employed individuals in Germany.
The Deutsche Rentenversicherung offers detailed statistics and reports on the development of reduced earning capacity pensions.
The Consumer Advice Centre provides information on how you can protect yourself against income loss with disability insurance.
The Federal Ministry of Labour and Social Affairs (BMAS) offers an official definition of the term occupational disability.
FAQ
Am I not covered by statutory pension insurance as a self-employed person?
Most self-employed individuals do not contribute to the statutory pension insurance, and therefore have no or only a very low entitlement to disability pension. [4,6] This benefit is only provided if you can no longer engage in any work. [5]
What happens if I become occupationally disabled as a self-employed person and don’t have occupational disability insurance?
Without disability insurance, you have to live off your savings or apply for state basic security (citizenship benefit), which is often associated with significant financial cuts. [3,2]
Does the occupational disability insurance also cover mental illnesses?
Yes, mental illnesses such as depression or burnout are now the most common reasons for disability and are usually covered by insurance. [4.2] Make sure this is not excluded in the contract.
Can I deduct the contributions to disability insurance from my taxes?
Yes, self-employed individuals can claim their contributions to disability insurance as other precautionary expenses for tax purposes, up to a maximum amount of 2,800 euros annually. [1,1]
What is the difference between occupational disability insurance and incapacity insurance?
The occupational disability insurance pays out if you can no longer perform at least 50 percent of your last practiced profession. [2] The incapacity insurance, on the other hand, usually only pays out if you can no longer engage in any 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, absolutely. The younger and healthier you are, the cheaper the premiums and the easier the health assessment. [1,4] The risk of occupational disability exists at any age. [4]
