Deduct funeral insurance from tax: How to secure benefits
29 Apr 2025
10
Minutes
Katrin Straub
CEO at nextsure
The financial burden of a funeral is significant, but can you deduct a funeral insurance policy from your taxes? Find out under what conditions contributions are deductible and how the payout is treated to provide optimal protection for your loved ones.
The topic in brief and concise terms
Contributions to funeral insurance can only be deducted as special expenses for contracts concluded before 1 January 2005 under certain conditions.
The payout of a private funeral insurance policy in the event of death is exempt from income tax.
Funeral costs can be fully deducted from inheritance tax, even if the insurance payout counts towards the inheritance.
Quick Facts: Funeral insurance and tax at a glance
The tax deductibility of contributions to funeral insurance primarily depends on the date of the contract. For contracts concluded before 1 January 2005, there is, under certain conditions, the possibility to claim the contributions as special expenses. For more recent contracts, this is usually no longer the case. However, the payout sum from a private funeral insurance in the event of death is generally exempt from income tax. This provides a significant financial relief for the bereaved, who are often faced with funeral costs averaging between 7,000 and 8,000 euros. It is important to consider these regulations in the context of your tax-deductible insurance policies.
Deductions for Bereavement Insurance Contributions in Practice: What Applies?
For many, the question arises: Can I deduct my funeral insurance from tax? The answer is nuanced. The decisive factor is the contract's completion date. If this date is before the first of January 2005, you can declare the contributions as "other pension expenses" in the pension provision section of your tax return. Often, a minimum term of twelve years and a death benefit of at least sixty percent of the contribution sum was required for this. However, there are annual maximum limits for these pension expenses. For employees and pensioners, this is 1,900 Euros, and for self-employed individuals who fully pay their health insurance contributions themselves, it's 2,800 Euros. Since health and nursing care insurance contributions often reach these amounts, the deduction of funeral insurance unfortunately no longer has a tax-reducing effect. For contracts from 2005 onwards, a deduction of the contributions as special expenses is no longer provided. It is therefore advisable to thoroughly check your insurance and tax situation.
Expert Depth: Legal Foundations and Relevant Paragraphs
The tax treatment of funeral insurance is regulated in the Income Tax Act (EStG). For the deductibility of contributions to old contracts (before 2005), § 10 EStG is decisive, which governs the deduction of precautionary expenses. Contributions are declared in the "Annex Precautionary Expenses", usually in lines 49 or 50 for "Other precautionary expenses". The payout from a private funeral insurance policy in the event of death is generally tax-free according to § 3 No. 11 EStG. If a private funeral insurance policy is prematurely terminated (surrender), the profit, i.e., the difference between the payout and the paid contributions, may be taxable. Here, § 20 Para. 1 No. 6 EStG often applies. For old contracts with a minimum term of twelve years and payout after reaching the age of 62, often only half of the profit is taxable (half-income method). Our expert tip: Check the exact conditions of your contract, as these details can have significant effects. The optimal funeral insurance also takes these tax aspects into account.
Payout of the funeral insurance: Income tax and inheritance tax
The good news first: The payout sum from a privately concluded funeral insurance policy is income tax-free for the beneficiaries in the event of death. This means direct financial support without tax deductions on the benefit itself. It’s different for funeral benefits from an occupational pension scheme; these are generally taxable as other income or wages. An important aspect is inheritance tax. According to a ruling by the Federal Fiscal Court (BFH, Az. II R 31/21), the insurance sum paid out to the heirs counts as taxable acquisition. However, the actual funeral costs can be fully deducted as estate liabilities from the inheritance tax, not just the flat rate of 10,300 Euro according to § 10 Abs. 5 No. 3 ErbStG. This can significantly reduce the inheritance tax burden. It is therefore important to carefully keep all receipts for the funeral costs. For comprehensive preparation for the event of death, this is an important point.
The following costs can, for example, be claimed as estate liabilities:
Costs for the undertaker (coffin, transfer, care)
Cemetery fees (grave usage, burial)
Costs for the tombstone and grave design
Funeral service (room rental, speaker, music)
Obituaries and thank-you notes
Costs for issuing the certificate of inheritance
This detailed consideration helps to correctly assess the financial situation when inheriting.
Sonderfall: Funeral insurance and extraordinary burdens
In addition to the direct deductibility of contributions or tax-free payouts, there is another option for claiming costs related to 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 life insurance), these costs can be recognized as extraordinary burdens according to § 33 EStG in one's own tax return. However, the so-called reasonable burden must be exceeded, the amount of which depends on income, marital status, and the number of children. For example: If the funeral costs amount to 10,000 euros, the estate amounts to 2,000 euros, and the life insurance pays 5,000 euros, 3,000 euros remain that could potentially be deductible as extraordinary burdens, provided they exceed the individual reasonable limit. Proper documentation of all expenses is essential for this. This is another aspect to consider when planning a meaningful life insurance.
Design tips for your pension plan: Optimise existing contracts and new agreements
Do you have an outdated contract (signed before 2005)? If so, check whether you can claim the contributions as retirement expenses, even if the maximum amounts are often already reached by other insurance policies. Every euro counts. For new policies: Although the contributions are no longer deductible, the benefit from a private funeral insurance policy in the event of death remains exempt from income tax. This is a significant advantage. Our expert tip: When taking out new policies, look for flexible contract terms and an appropriate insurance sum that covers the expected costs of at least 7,500 euros. Also consider who will be designated as the beneficiary to simplify the claims process. A private life insurance may also involve tax considerations that should be examined.
Key points in contract design:
Choice of the right insurance sum (average 7,000 to 10,000 euros).
Clear regulation of the beneficiary entitlement to avoid delays.
Review of waiting periods and health questions.
Possibility of premium adjustments or one-off payments.
Consideration of inflation trends when determining the sum assured.
A well-thought-out arrangement ensures your wishes are met and significantly relieves your relatives.
nextsure: Your partner for worry-free protection
The question of whether you can deduct funeral insurance from tax is just one aspect of comprehensive financial planning. At nextsure, we understand that every life situation is unique. Our mission is to provide you with tailored and easy-to-understand insurance solutions. We help you find the right funeral insurance that not only offers financial security but also considers your individual wishes. With our expertise in niche insurance and digital processes, we are by your side. Careful planning today means fewer worries for your loved ones tomorrow. The average cost of a funeral can quickly exceed 8,000 euros.
Request an individual risk analysis now: Have your insurance situation checked free of charge and receive specific suggestions for optimisation.
More useful links
Wikipedia offers a comprehensive article on funeral insurance, providing basic information and definitions.
The German Federal Ministry of Finance provides official information on its website regarding tax regulations relevant to pension scheme expenses.
Further official information about the Income Tax Act and its application can be found on the website of the German 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).
Stiftung Warentest offers an independent comparison of various funeral insurance policies to assist consumers in making their choice.
The Vereinigte Lohnsteuerhilfe e.V. (VLH) provides comprehensive information about the tax aspects and treatment of funeral insurance benefits.
The German Insurance Association (GDV) explains which insurance premiums can be deducted from taxes.
The Sparkasse offers practical advice on the tax deductibility of funeral costs and liabilities.
FAQ
Are contributions to funeral insurance policies concluded after 2004 tax-deductible?
No, for funeral insurance policies taken out after 31 December 2004, the contributions can generally no longer be claimed as special expenses in the tax declaration.
What are the allowances for inheritance tax on benefits from funeral insurance?
The personal allowances for inheritance tax vary according to the degree of kinship (e.g., 500,000 euros for spouses, 400,000 euros for children). The insurance sum is considered part of the estate, but the actual funeral costs can be deducted as estate liabilities.
Do I have to report the payout of a funeral insurance policy to the tax office?
The payout of a private funeral insurance in the event of death is exempt from income tax and therefore does not need to be included in the beneficiary's income tax return. However, it must be stated in the inheritance tax return.
Can funeral expenses be deducted as extraordinary burdens, even if there is a funeral insurance policy?
Yes, if the funeral costs exceed the estate value and the benefits from the funeral insurance, the remaining costs can be claimed as extraordinary burdens, provided that the reasonable burden limit is exceeded.
Is there a difference in the tax treatment between private and business funeral insurance?
Yes, significantly. The payout from a private funeral insurance policy is exempt from income tax in the event of death. However, benefits from a company funeral insurance policy (e.g., through a support fund or direct insurance) are generally taxable as income.
What is the maximum amount for other precautionary expenses?
The maximum amount for other deductible expenses (which includes deductible contributions to death benefit insurance for older contracts) is 1,900 euros for employees/pensioners and 2,800 euros for self-employed individuals who fully pay for their health insurance themselves. This amount is often already exhausted by health and nursing care insurance contributions.
