Direct insurance: Optimising and reducing health insurance contributions
5 Jun 2025
6
Minutes
Katrin Straub
CEO at nextsure
The payout of a direct insurance at retirement is often associated with unexpected health insurance contributions. Many policyholders only learn about this additional financial burden upon entering retirement. Find out here what regulations apply and how you may be able to reduce your tax burden.
The topic in brief and concise terms
Benefits from direct insurance are subject to health and nursing care insurance contributions for those insured under statutory schemes, which can reduce the payout by as much as twenty percent.
A monthly allowance of €187.25 (as of 2025) for pensioners with mandatory insurance reduces the basis for calculating health insurance contributions.
Private continuation of the contract as the policyholder or an early transfer can exempt parts of the service from the obligation to pay contributions.
Understanding Health Insurance Contributions on Direct Insurance Policies
Benefits from direct insurance policies are generally subject to contributions for those with statutory health insurance. This has been the case since a change in the law in 2004 and affects pensions as well as lump sum payments. In the case of a lump sum payment, the amount is spread over ten years and charged monthly. This means one one-hundred-and-twentieth of the capital payment is considered as the monthly payment amount. For those with private health insurance, this issue does not arise, as their contributions are unchanged regardless of income. The obligation to pay contributions can reduce the net payout by around twenty percent. This regulation surprised many policyholders who did not anticipate these deductions at the time of signing the contract. It is therefore important to examine the exact impact on your private pension.
Make use of allowances and reliefs
An important relief for occupational pensioners is the allowance for health insurance contributions. Since 1st January 2020, the Occupational Pensions Allowance Act (GKV-Betriebsrentenfreibetragsgesetz) has been in place. For the year 2025, this allowance is set at 187.25 euros per month. Only the part of the occupational pension that exceeds this allowance is subject to health insurance contributions. For example, with a monthly occupational pension of 300 euros, only 112.75 euros would be subject to contributions. This allowance also applies to lump-sum payments that are spread over ten years. Importantly: Voluntarily insured statutory members do not benefit from this allowance. For them, the entire benefit is subject to contributions. A voluntary health insurance may have different rules here.
The following points should be noted regarding the allowance:
The allowance applies to compulsory insured pensioners in the statutory health insurance.
It amounts to 187.25 euros per month (as of 2025).
Only the exceeding amount of the pension benefits is considered for health insurance contributions.
In the case of multiple occupational pensions, the allowance applies only once.
For long-term care insurance, there is an exempt amount of the same value; if this is exceeded, the full amount is subject to long-term care insurance contributions.
The introduction of the allowance has brought noticeable financial relief for many pensioners. Nevertheless, a thorough examination of the individual situation is essential.
Strategies for Reducing Contribution Burden
There are several approaches to minimise the burden of health insurance contributions on direct insurance policies. One option is to continue the contract privately if the employer is no longer the policyholder. If you become the policyholder and pay the contributions, this privately saved part will at least be exempt from contributions later. This should ideally be done before the payout phase. An early transfer of the policyholder can be crucial here. For contracts under Section 40b of the Income Tax Act (EStG), where contributions were already paid during the accumulation phase, the renewed burden is particularly annoying. Here, it may be worthwhile to consider converting it into a contract under Section Three Number 63 of the EStG. It is advisable to inform yourself about the possibilities of tax deductibility. Consulting with experts can assist in finding the best solution for your individual situation.
Lump Sum Payment versus Pension: What to Consider with Contributions?
The decision between a one-time capital payout and a monthly pension impacts health insurance contributions. With a capital payout, the sum is fictitiously distributed over one hundred and twenty months. Health and nursing insurance contributions are then due on this monthly amount if the exemption threshold is exceeded. A monthly pension is also subject to contributions if it exceeds the exemption threshold. For very small pensions below the exemption threshold of 187.25 euros (as of 2025), no health insurance contributions are due. Therefore, the choice of payout form should be carefully considered. An example calculation: A capital payout of 60,000 euros results in a fictitious monthly amount of 500 euros (60,000 euros / 120 months). After deducting the exemption threshold of 187.25 euros (as of 2025), 312.75 euros would be subject to contributions, illustrating the significant burden. Also consider what happens if a new employer does not assume the direct insurance.
Considerations for the payout form:
Capital payout: Distribution over 120 months for contribution calculation.
Monthly pension: Direct contribution for the portion exceeding the exemption threshold.
Exemption threshold: Applies to both payout forms for statutory insured individuals.
Nursing care insurance: Respect the free limit, otherwise full contribution.
Privately insured: No health insurance contributions on the payout.
The long-term financial implications of both options should be carefully compared.
Legal foundations and recent judgments
The obligation to pay health insurance contributions on direct insurance is based on the Act on the Modernisation of the Statutory Health Insurance System (GMG) of 2004. Particularly relevant here are Section 229 and Section 248 of the Fifth Book of the Social Code (SGB V). The Federal Constitutional Court and the Federal Social Court have fundamentally confirmed the obligation to contribute in various rulings but have also identified limits. For instance, it was decided that privately continued contract components are not subject to contributions. A ruling by the Federal Social Court in 2019 reaffirmed the obligation to pay contributions on capital payouts from occupational life insurance policies. It is important to follow current court rulings, as these can influence the legal situation. Those affected should lodge an objection in case of uncertainties or incorrect notices and, if necessary, file a lawsuit with the Social Court. The termination of occupational pension provision when changing employers can also raise complex questions.
Expert tips for optimizing your direct insurance
To minimize the burden of health insurance contributions, there are several expert tips available. Our expert tip: Check early on whether transferring the policyholder status to you as an employee is possible, if you continue to pay contributions privately. This can exempt the privately financed portion from mandatory contributions. For older contracts (concluded before 2005), other regulations may apply, so a thorough review is essential here. Critically assess the profitability of your direct insurance, especially if it is a contract under Section 40b of the German Income Tax Act. Professional advice can help save up to twenty percent of contributions. Also, clarify whether you may already be paying the maximum contribution to statutory health insurance; in such a case, no additional contributions would be due on the direct insurance. Find out about the possibility of taking company retirement provision with you. Forward-looking planning is the key to optimization.
Common mistakes and how to avoid them
A common mistake is dealing with the topic of health insurance contributions too late. Many insured individuals only confront these deductions shortly before or upon retirement, when there is little room for manoeuvre. Another misconception is assuming that one-off capital payouts are contribution-free; this hasn't been the case since 2004. Failing to check the health insurance contribution notices can also lead to financial disadvantages. Do not underestimate the complexity of the regulations. It is also a mistake to believe that the tax allowance applies individually to each company pension; it is granted only once on the total of all pension benefits. Confusing the tax allowance (health insurance) with the exemption threshold (long-term care insurance) can lead to false expectations. Also, clarify whether health insurance has to be paid on a Riester pension.
Mistakes to be avoided are:
Getting information about contribution obligations too late.
Assuming the contribution-free status of capital payouts.
Not checking health insurance notices.
Misinterpreting the tax allowance for multiple company pensions.
Not knowing the differences between tax allowance and exemption threshold.
A proactive approach and good information can protect against unpleasant surprises.
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More useful links
The Wikipedia provides a comprehensive overview of direct insurance in Germany.
The Federal Ministry of Health provides information about the GKV Company Pension Exemption Act and its regulations.
The Techniker Krankenkasse (TK) offers information on non-contributory pension payments and exemption limits.
You can also get details about allowances for occupational pensions from the Techniker Krankenkasse (TK).
The AOK provides explanations about health insurance contributions on pension payments.
Destatis (Federal Statistical Office) provides a PDF document on contributions to retirement provision.
Another PDF from Destatis sheds light on the methods and fundamentals of healthcare expenditure accounting.
FAQ
How can I reduce the health insurance contributions on my direct insurance?
Options include using the personal allowance (€187.25 in 2025 for those with compulsory insurance), examining the policyholder status for privately continued contracts, or seeking professional advice to optimize your specific situation.
Does the allowance for health insurance contributions also apply to those who are voluntarily insured under statutory health insurance?
No, the allowance for health insurance contributions on company pensions only applies to pensioners who are mandatorily insured in the statutory health insurance. Voluntarily insured individuals must pay contributions on the full amount.
What role does the GMG play in health insurance contributions on direct insurance policies?
The 2004 Law on the Modernisation of Statutory Health Insurance (GMG) introduced the obligation for statutory health and care insurance contributions on benefits from occupational pension schemes, including direct insurance, for those insured under statutory schemes.
What is the difference between the allowance and the exemption limit for pension benefits?
The allowance (e.g., €187.25 for health insurance in 2025) reduces the assessment basis; only the portion that exceeds is subject to contributions. A threshold (e.g., for long-term care insurance) means: If it is exceeded, the entire amount is subject to contributions.
Do I also have to pay health insurance contributions on the privately funded part of a direct insurance policy?
If you continue the contract privately after leaving the company and become the policyholder yourself, paying the contributions, the portion of the payout attributable to these private contributions is generally not subject to health insurance requirements.
How are lump-sum payments from direct insurance treated in terms of health insurance contributions?
A lump-sum payment is spread over ten years (120 months) for contribution calculation. One one-hundred-twentieth of the sum is considered a monthly retirement benefit, on which contributions are due if the tax-free allowance is exceeded.
