Deduct funeral insurance from your taxes: how to secure your benefits
29.04.25
5
Minutes
Katrin Straub
Managing Director at nextsure
The financial burden of a funeral is considerable, but can you claim funeral insurance as a tax deduction? Find out under what conditions premiums are tax-deductible and how the payout is treated, so you can protect your loved ones in the best possible way.
The topic in brief and concise terms
Contributions to funeral expense insurance are only deductible as special expenses in certain circumstances for contracts concluded before 1 January 2005.
The payout of a private funeral insurance policy on death is exempt from income tax.
Funeral costs can be deducted in full from inheritance tax, even if the insurance sum is included in the estate.
Quick Facts: Funeral insurance and tax at a glance
The tax deductibility of contributions to a funeral insurance policy depends decisively on the contract date. For contracts concluded before 1 January 2005, there is, under certain conditions, the possibility of claiming the contributions as special expenses. For newer contracts, this is generally no longer the case. However, the payout amount from a private funeral insurance policy in the event of death is generally exempt from income tax. This provides an important financial relief for surviving dependants, who are often faced with funeral costs averaging between 7,000 and 8,000 euros. It is important to consider these rules in the context of your tax-deductible insurance policies.
Deducting contributions to funeral expense insurance in practice: What applies?
For many people, the question arises: Can I deduct my funeral insurance premiums from tax? The answer is nuanced. The decisive factor is the contract's start date. If this was before 1 January 2005, you can enter the contributions as "other pension expenses" in the pension expenses section of your tax return. This often required a minimum term of twelve years and a death benefit of at least sixty per cent of the contribution sum. However, there are annual maximum amounts for these pension expenses. For employees and pensioners, this is EUR 1,900; for self-employed people who bear their health insurance contributions in full themselves, EUR 2,800. Since the contributions to health and long-term care insurance often already use up these amounts, unfortunately deducting funeral insurance no longer has any tax-reducing effect. For contracts from 2005 onwards, deduction of the contributions as special expenses is no longer provided for. A precise review of your insurance and tax situation is therefore advisable.
Expert depth: legal foundations and relevant sections
The tax treatment of funeral insurance is regulated in the Income Tax Act (EStG). For the deductibility of contributions to older policies (before 2005), Section 10 EStG is relevant, which governs the deduction of pension-related expenses. The contributions are declared in the “Anlage Vorsorgeaufwand”, usually in lines 49 or 50 for “Further other pension-related expenses”. In the event of death, the payout from a private funeral insurance policy is generally tax-free under Section 3 No. 11 EStG. If a private funeral insurance policy is terminated early (surrender), the gains, i.e. the difference between the payout and the contributions paid in, may be taxable. Section 20(1) No. 6 EStG often applies here. For older policies with a term of at least twelve years and a payout after the age of 62, often only half of the gains are taxable (half-income method). Our expert tip: check the exact terms of your policy, as these details can have a significant impact. The optimal funeral insurance also takes these tax aspects into account.
Funeral insurance payout: income tax and inheritance tax
The good news first: the payout from a privately arranged funeral expenses insurance policy is income tax-free for the beneficiaries in the event of death. This means direct financial support without any tax deductions on the benefit itself. The situation is different with funeral benefits from an occupational pension scheme; these are generally taxable as other income or employment income. An important aspect is inheritance tax. According to a ruling by the Federal Fiscal Court (BFH, case no. II R 31/21), the insurance sum paid out to the heirs counts towards the taxable acquisition. However, the actual funeral costs can be deducted in full from inheritance tax as liabilities of the estate, not just the flat-rate amount of 10,300 euros pursuant to § 10 para. 5 no. 3 ErbStG. This can significantly reduce the inheritance tax burden. It is therefore important to keep all receipts for funeral costs carefully. For comprehensive preparation for death, this is an important point.
The following costs, for example, can be claimed as liabilities of the estate:
Costs for the undertaker (coffin, transportation, care)
Cemetery fees (grave use, burial)
Costs for the gravestone and grave installation
Funeral service (room hire, speaker, music)
Obituary notices and acknowledgements
Costs for issuing the certificate of inheritance
This detailed assessment helps to properly evaluate the financial situation in the event of an inheritance.
Special case: funeral insurance and extraordinary burdens
In addition to the direct deductibility of contributions or the tax-free payout, there is another way to claim costs associated with a death for tax purposes. If the funeral costs borne by the heirs exceed the value of the estate and any insurance benefits (such as those from funeral insurance), these costs can be claimed as extraordinary expenses under Section 33 of the German Income Tax Act in your own income tax return. However, the so-called reasonable burden must be exceeded; its amount depends on income, marital status and the number of children. For example: if the funeral costs are €10,000, the estate amounts to €2,000 and the funeral insurance pays €5,000, €3,000 remains, which could potentially be deductible as extraordinary expenses, provided they exceed the individual reasonable threshold. Proper documentation of all expenses is essential for this. This is another aspect to bear in mind when planning a suitable funeral insurance policy.
Structuring tips for your provision: optimising existing contracts and new agreements
Do you have an older policy (taken out before 2005)? Then check whether you can claim the premiums as retirement provision expenses, even if the maximum amounts have often already been reached through other insurance policies. Every euro counts. For new policies: Even if the premiums can no longer be deducted, the benefit payable on death from a private funeral expenses policy remains free of income tax. This is a significant advantage. Our expert tip: When taking out new policies, look for flexible policy terms and an appropriate sum assured that covers the expected costs of at least EUR 7,500. Also consider who should be named as the beneficiary to simplify the process when a claim is made. A private life insurance policy can also involve tax aspects that should be reviewed.
Important points when arranging the policy:
Choosing the right sum assured (average EUR 7,000 to 10,000).
Clear rules on the right to benefits to avoid delays.
Checking waiting periods and health questions.
Possibility of premium adjustments or one-off payments.
Taking inflation into account when determining the sum assured.
Well-considered arrangements secure your wishes and noticeably relieve the burden on your family.
The question of whether funeral expense insurance can be deducted from tax is only one aspect of comprehensive financial planning. At nextsure, we understand that every life situation is unique. Our mission is to offer you tailored and easy-to-understand insurance solutions. We help you find the right funeral expense insurance, which not only provides financial security but also takes your individual wishes into account. With our expertise in niche insurance and digital processes, we are here to support you. Careful planning today means less worry for your loved ones tomorrow. The average cost of a funeral can quickly exceed €8,000.
Request your personalised risk analysis now: Have your insurance situation reviewed free of charge and receive concrete suggestions for improvement.
More useful links
Wikipedia offers a comprehensive article on funeral expense insurance, providing basic information and definitions.
The Federal Ministry of Finance provides official information on tax regulations on its website, which are relevant for provision expenses.
Further official information on the Income Tax Act and its application can be found on the website of the Federal Ministry of Finance.
The Federal Statistical Office (Destatis) offers an official definition and explanation of the term "funeral costs" in its glossary.
A detailed analysis of the cost structure of funeral services can be found in a PDF document from the Federal Statistical Office (Destatis).
The Stiftung Warentest offers an independent comparison of various funeral expense insurance policies to help consumers choose.
The United Lohnsteuerhilfe e.V. (VLH) provides comprehensive information on the tax aspects and treatment of death benefit payments.
The German Insurance Association e.V. (GDV) explains which insurance contributions can be deducted from tax.
The Sparkasse offers practical guidance on the tax deductibility of funeral costs and estate liabilities.
FAQ
Are contributions to funeral insurance policies taken out after 2004 tax-deductible?
No, for funeral benefit insurance policies taken out after 31 December 2004, the contributions can generally no longer be claimed as special expenses in the tax return.
What are the allowances for inheritance tax on benefits from funeral expense insurance?
The personal allowances for inheritance tax vary depending on the degree of relationship (e.g. €500,000 for spouses, €400,000 for children). The insurance sum counts as part of the estate, but the actual funeral costs are deductible as estate liabilities.
Do I need to report the payout of a funeral expenses insurance policy to the tax office?
The payout of a private funeral insurance policy in the event of death is exempt from income tax and therefore does not have to be declared in the beneficiary’s income tax return. However, it must be declared in the inheritance tax return.
Can funeral costs be deducted as extraordinary expenses even if there is a funeral insurance policy in place?
Yes, if the funeral costs exceed the value of the estate and the benefits from the death benefit insurance, the remaining costs can be claimed as exceptional expenses, provided the reasonable burden threshold is exceeded.
Is there a difference in the tax treatment between private and business funeral insurance?
Yes, significantly. Payouts from a private funeral insurance policy are exempt from income tax in the event of death. By contrast, benefits from an occupational funeral insurance policy (e.g. via a provident fund or direct insurance policy) are generally taxable as income.
What is the maximum amount for other precautionary expenses?
The maximum amount for other provision expenses (which includes deductible contributions to funeral benefit insurance under older policies) is EUR 1,900 for employees/pensioners and EUR 2,800 for self-employed people who pay their health insurance in full themselves. This amount is often already used up by health and long-term care insurance contributions.
