Occupational disability insurance: payout after expiry – What you need to know
11.06.25
4
Minutes
Katrin Straub
Managing Director at nextsure
Many people wonder what happens to their occupational disability insurance (BU) when the policy term ends. Do you receive a payout when it expires, or are contributions lost? This article answers the key questions and explains when and for how long a BU pension is paid.
The topic in brief and concise terms
Occupational disability insurance will only continue paying after the policy term has expired if the incapacity for work occurred during that period and the benefit period has not yet been reached.
In a pure disability risk insurance policy, premiums are not refunded at the end of the term if no occupational disability has occurred.
Ideally, the insurance and benefit period should extend until retirement age (e.g. 67 years old) to avoid gaps in cover.
Quick Facts: The most important facts about BU payouts after the contract expires
Disability insurance is a risk protection policy for the event that you can no longer carry out your occupation. A payout is made as a monthly pension if certain conditions are met. If disability does not occur during the contract term, there is usually no refund of premiums.
No standard payout at the end of the contract: If the contract ends without disability having occurred, the premiums are generally forfeited. Unless a rare and more expensive version with premium refund has been taken out.
Insurance term vs. benefit term: The insurance term is the period during which disability must occur. The benefit term determines how long the pension is paid at most.
Ongoing pension after the insurance term ends: If you became disabled during the insurance term, the pension will continue to be paid after it ends, until the end of the benefit term or until you recover.
Conditions for pension payments: Usually, you must be at least fifty per cent disabled in your occupation and this must be expected to last for at least six months.
Observe the age limit: Ideally, both the insurance term and the benefit term should extend to the statutory retirement age (currently often 67) in order to avoid gaps in coverage.
These key points show that disability insurance primarily pays out in the event of a claim, not as a savings plan. The exact conditions can always be found in your policy.
Practical examples: When is the disability pension paid after the official end of the contract?
To make the payout from occupational disability insurance after the insurance term has ended more tangible, we consider two scenarios. What matters is always when the occupational disability occurs and how long the benefit period has been agreed. Let us assume your insurance term runs until age 60, while the benefit period runs until age 67.
Scenario one: Occupational disability occurs before the end of the insurance term. You become occupationally disabled at 58. As this falls within the insurance term up to age 60, the insurer will review your claim. If it is accepted, you will receive your occupational disability pension. This payment then continues beyond age 60, up to the end of the benefit period at age 67 at the latest, as long as the occupational disability persists.
Scenario two: Occupational disability occurs after the end of the insurance term. You do not become occupationally disabled until age 61. As the insurance term has already ended at age 60, there is no longer any entitlement to benefits. No payout is made from the occupational disability insurance, even if the benefit period would theoretically run longer. This underlines the importance of an insurance term that is sufficiently long, ideally until retirement. Applying for the occupational disability pension is then no longer possible.
In-depth expertise: Optimising insurance and benefit periods
The correct definition of the insurance period and benefit period is a central aspect of seamless cover. The insurance period defines the period within which occupational disability must occur for an entitlement to benefits to arise. The benefit period, on the other hand, determines the maximum age up to which the BU pension is paid if a claim arises. In most modern policies, both periods end at the same time, ideally when the statutory retirement age of, for example, 67 is reached.
Our expert tip: Make sure that both terms – the insurance period and the benefit period – run until your planned retirement age. Shortening the insurance period to save on premiums can be risky, as the risk of occupational disability increases with age. If occupational disability occurs after an insurance period that has been chosen too short, you will receive no benefits, even if you become occupationally disabled just one year later. Taxation of the BU pension is also an aspect that should be considered in planning.
There are policies in which the benefit period is longer than the insurance period. An example: insurance period until 62, benefit period until 67. In this case, occupational disability must occur by the age of 62 in order to receive benefits until the age of 67. This can make sense in individual cases, but it carries the risk of a gap in cover after the insurance period ends. Careful advice on occupational disability insurance is essential here.
Special case of older contracts: case law on contracts from 1995 to 2005
A special situation arises for holders of disability insurance policies that were taken out between 1995 and 2005. Many of these older policies contained clauses with a fixed expiry date, for example at age 60 or 62. In a ruling (case no. IV ZR 401/14), the Federal Court of Justice (BGH) decided that certain time limits in such contracts may be invalid.
This can mean that policyholders may, in some circumstances, still be entitled to benefits even after the supposed expiry of the contract, provided that the disability occurred during the originally insured period and continues beyond it. In some cases, insurers had to make substantial back payments as a result of this case law, in some instances up to EUR 360,000. So examine older policies from this period carefully.
The following points are relevant here:
The invalidity relates to specific clause structures concerning time limits.
The usual requirement is a disability that occurred during the contract term and continues to exist.
A legal review by specialist lawyers can clarify whether your contract is affected.
There may have been a claim for contract extension, even if the terms excluded this.
This legal situation offers an opportunity for affected parties whose benefits may have been stopped too early. It shows how important the exact conditions for disability insurance payments are.
No payout if not claimed: the risk character of BU
A common misunderstanding regarding occupational disability insurance is the expectation of a refund of contributions at the end of the term if no benefits have been claimed. However, BU is pure risk insurance, not an investment. The contributions paid in are used to protect the pool of policyholders and to pay benefits to those who actually become unable to work.
So if you remain healthy until the contract expires and do not become unable to work, the contract ends without any financial payout of the premiums paid. This is the norm with risk insurance. There are products with so-called premium refunds, but these are rare, significantly more expensive and often not recommended, as only a fraction of the premiums is paid back. The main purpose of BU is to cover the existential risk, not to build up capital. The premium escalation feature can help preserve the value of the cover over time.
Tax treatment of disability pension: what’s left of the money
If you receive a pension from your occupational disability insurance, this is generally taxable. The BU pension counts as other income. However, not the full pension is taxable, but only the so-called income portion. The amount of this income portion depends on the expected period for which the pension will be paid: the shorter the remaining benefit period when occupational disability begins, the lower the taxable income portion.
For example: if the remaining term of the pension is only one year, the income portion is zero per cent. With a remaining term of ten years, it is twelve per cent, and with twenty years, twenty-one per cent (values may vary depending on the exact rules). This income portion is then taxed at your personal income tax rate. If your total taxable income, including the income portion of the BU pension, is below the annual basic tax allowance (for 2025: EUR 12,096 for individuals), no tax is due. It is advisable to find out about the tax aspects early on.
To be optimally covered in the event of the worst happening and to answer the question “disability insurance payout after expiry” in your favour, a few points are crucial. You can set the course both when taking out the policy and during the term. A suitable disability insurance policy is worth its weight in gold.
Please note the following recommendations:
Term until retirement age: Choose your planned retirement age, usually 67, for both the insurance term and the benefit period.
Sufficient pension amount: Calculate the pension amount so that it covers your standard of living and ongoing costs, around eighty per cent of net income.
Truthful health disclosures: Complete health questions absolutely accurately so as not to jeopardise your cover.
Waiver of abstract referral: Make sure your contract includes a waiver of abstract referral.
Regular contract review: Review your contract every few years, especially if your professional or family circumstances change.
Have older policies reviewed: If you have a policy from between 1995 and 2005, a legal review may be worthwhile.
Use professional advice: The subject is complex. Independent advice helps avoid pitfalls.
These measures increase the likelihood that your disability insurance will pay out as expected in an emergency. Understanding the distinction from incapacity for gainful employment is also important.
Conclusion: Long-term planning is crucial for the BU payout
The payment of a disability insurance policy after the actual end of the contract term (policy term) depends largely on whether incapacity for work arose during the term of the insurance and how long the benefit period was agreed. Refunds of premiums if no claim is made are unusual, as this is a risk insurance policy. The key to reliable protection lies in a contract structure carefully planned from the outset, especially with regard to terms up to the retirement age of 67. For certain older policies (1995-2005), special entitlements may arise from court rulings. Comprehensive advice is essential to find the cover that suits your situation and avoid gaps in protection.
Request an individual risk analysis now: Have your insurance situation reviewed free of charge and receive specific suggestions for optimisation.
FAQ
What happens to my disability insurance at the end of the term?
If you have not become occupationally disabled during the term of the contract, the insurance cover ends and, as a rule, no payment of the contributions paid in is made. If you were already occupationally disabled and are receiving a pension, this continues until the end of the agreed benefit period, even if the original insurance term (for the occurrence of new disability cases) has ended.
Is a refund of the premiums possible if the BU policy is cancelled?
No, if a pure occupational disability insurance policy is cancelled, the premiums paid up to that point are usually not refunded. The insurance cover then ends.
What role does the retirement age play in the disability insurance term?
It is highly recommended that you choose the insurance and benefit period for your occupational disability insurance (BU) to run until the statutory retirement age (e.g. 67). This will help you avoid a gap in cover if you become unable to work shortly before retirement.
Are there any exceptions where older contracts continue beyond the agreed end date?
Yes, for disability insurance policies concluded between 1995 and 2005, there is case law from the German Federal Court of Justice (BGH) that can render certain end-age clauses invalid. Those affected may, under certain circumstances, still have entitlement to benefits even after the supposed end of the contract if occupational disability arose during the term and continues. A legal review is advisable here.
Do I have to pay tax on disability pension?
Yes, occupational disability pension is taxable. However, only the so-called taxable share is taxed, the amount of which depends on the remaining term of the pension when occupational disability occurs.
What is more important: a long policy term or a long benefit period?
Both are important and should ideally be identical and last until retirement age. The insurance term determines by when the BU must occur; the benefit term, how long payments are made at most. A short insurance term carries the risk of being left without protection once it expires.
