Endowment life insurance in divorce: your guide to fair division and financial clarity
09.06.25
6
Minutes
Katrin Straub
Managing Director at nextsure
Divorce raises many financial questions, especially when it comes to a whole life insurance policy. Find out how to protect your claims in the context of equalisation of accrued gains and pension adjustment, and which steps are crucial now.
The topic in brief and concise terms
Whole-life insurance policies are usually included in the equalisation of accrued gains on divorce (surrender value is decisive) or, if they have the character of an annuity, in the pension adjustment scheme.
The beneficiary designation of a life insurance policy does not automatically change upon divorce and must be actively updated to avoid unintended beneficiaries.
Tax implications depend on the date the contract was concluded; contracts from 2005 onwards are often taxable, while older ones may be tax-free, subject to specific conditions.
Divorce and endowment life insurance: Understanding the basics
In the event of a divorce, assets must be divided, and this often includes an endowment life insurance policy. This may be subject either to the equalisation of accrued gains or to pension equalisation. The type of policy and the time the contract was concluded are decisive. A careful review of the policy is essential as early as separation, but at the latest when divorce proceedings are initiated. The current surrender value of the policy is often an initial point of reference for valuation.
Quick Facts: Endowment life insurance and divorce at a glance
The key points on endowment life insurance in the event of divorce can be summarised quickly. These facts provide an initial guide to your situation.
Endowment life insurance policies with an option to take a lump sum are usually included in the equalisation of accrued gains if the lump-sum payout was chosen before the divorce petition became pending.
The relevant value for the equalisation of accrued gains is usually the surrender value as at the date the divorce petition is served.
Life insurance policies based solely on an annuity are divided in the pension equalisation.
The beneficiary designation does not change automatically as a result of divorce and must be updated proactively.
For policies taken out from the year two thousand and five onwards, gains are often taxable; older policies may be tax-free.
An insurance policy taken out before the marriage can still fall partly into the equalisation of accrued gains, namely in respect of the increase in value during the marriage.
This overview serves as a starting point for understanding the complexity of the topic. However, the details are crucial for a fair division of assets.
Practical section: calculating and structuring equalisation of accrued gains in practice
Endowment life insurance is often taken into account in the context of equalisation of accrued gains in the event of a divorce. This applies to policies that are designed for a one-off capital payment. The valuation date is the day on which the divorce petition is served on the other spouse. The insurance company will provide the current surrender value on request. For example: if one spouse has built up an endowment life insurance policy with a surrender value of twenty thousand euros during the marriage, this value is included in their final assets. If that spouse’s initial assets amounted to zero euros, the accrued gain is twenty thousand euros. The other spouse is then entitled to half of that accrued gain, i.e. ten thousand euros, provided that no other assets or debts are to be offset. For an accurate calculation, a life insurance tax calculator can provide an initial indication. Cancelling the life insurance policy before the divorce can cause the proceeds to be included in the final assets and thus affect the equalisation claim. It is advisable to make the endowment life insurance policy paid-up rather than cancelling it hastily, in order to minimise losses. The exact approach depends heavily on the individual case.
Pension Equalisation: When the pension is in focus
Not every life insurance policy is included in the equalisation of accrued gains. If it is a private pension policy or an endowment life insurance policy in which the pension option has not yet been exercised and which is primarily used for retirement provision, the pension adjustment applies. Here, the pension entitlements accrued by both partners during the marriage are divided equally. The family court carries out this adjustment of its own motion. This means that each spouse receives half of the entitlements accrued by the other during the marriage. For example: if one partner acquired pension entitlements from a private pension policy during the marriage worth two hundred euros per month, the other partner is credited with one hundred euros. This also applies to endowment life insurance policies in pension adjustment if they meet the criteria. The distinction between a pension policy and life insurance policy is crucial here. The complexity of pension adjustment often requires a careful review of all retirement provision contracts.
Expert depth: legal pitfalls and drafting tips
In the event of divorce, there are several legal details that need to be considered. One important point is the beneficiary designation. Divorce does not automatically change a beneficiary designation that has already been set. If the ex-partner is still entered as the beneficiary, they will receive the insurance payout in the event of a claim. A change is often only possible with the insurer’s consent and, where applicable, that of the irrevocable beneficiary. Our expert tip: check all insurance policies immediately upon separation and amend the beneficiary designation in writing, if possible. Another aspect is the exercise of the capital option in endowment life insurance policies. If the capital option is exercised (that is, the decision is made to take a lump-sum payment instead of a pension) before service of the divorce petition, the value falls into the equalisation of accrued gains. If it happens later, or not at all, pension equalisation may apply. The Federal Court of Justice clarified this in its decision of 5 October 2011 (case no. XII ZB 555/10). The tax consequences, particularly for contracts concluded after 2004, should also not be overlooked. In such cases, the returns may be taxed. There are various types of life insurance, and each has its own particular features. In a whole-of-life policy with disability insurance, both contractual components must be considered separately.
Tax treatment of endowment life insurance after divorce
The tax aspects of a whole-of-life insurance policy in the context of a divorce are complex. The contract date is particularly relevant. For policies taken out before 1 January 2005, payouts can be completely tax-free under certain conditions. These include a minimum term of twelve years and a contribution payment period of at least five years. For policies taken out from 1 January 2005 onwards, the returns are generally subject to withholding tax of twenty-five per cent plus solidarity surcharge and, where applicable, church tax. However, there is an important exception: the so-called 12/62 rule. If the returns are paid out only after the age of sixty-two and the policy has run for at least twelve years, only half of the returns must be taxed at the personal income tax rate. The private life insurance policy and its taxation is a complex area. The payout on death to the beneficiary is exempt from income tax, but may trigger inheritance tax if the allowances are exceeded. The question of how long the payout takes after death is independent of the divorce, but is relevant for beneficiaries.
To handle an endowment life insurance policy correctly in a divorce, you should proceed in a structured way. Here are specific steps that can help you:
Gather all documents relating to your endowment life insurance policies and those of your spouse (policies, latest value statements).
Check the contract start date to draw initial conclusions about the tax treatment.
Clarify who is listed as the policyholder and who is named as the beneficiary.
Obtain current surrender values from the insurance companies. This value is often the basis for the accrued gains adjustment.
Analyse whether the policy primarily serves capital accumulation or retirement provision (pension-like character), in order to assign it to either the accrued gains adjustment or the pension adjustment.
Discuss the strategy regarding accrued gains and pension adjustments with a specialist family lawyer.
Adjust the beneficiary designation if necessary, if this is desired and possible.
Also take into account other forms of provision such as a term life insurance policy, which does not have a surrender value, but whose beneficiary designation should also be reviewed.
An early and comprehensive clarification of these points can avoid many later conflicts and financial disadvantages. The complexity often requires an individual assessment of your endowment life insurance policy.
Conclusion: Proactive action protects your financial interests
The treatment of a life insurance policy with a savings component in the event of divorce is a complex subject with many financial and legal pitfalls. Early engagement with the rules on the division of accrued gains and pension equalisation is crucial. A precise analysis of your policies, clarification of values and beneficiaries, and consideration of tax aspects are essential. However, with the right knowledge and, where necessary, expert support, you can achieve a fair solution and protect your financial interests as far as possible. Bear in mind that every situation is unique and requires an individual assessment.
Request your individual risk analysis now: Have your insurance situation checked free of charge and receive specific suggestions for optimisation.
More useful links
Federal Statistical Office (Destatis) provides general information on marriages, divorces and civil partnerships.
Federal Statistical Office (Destatis) provides a press release with up-to-date statistics on marriages and divorces.
Federal Statistical Office (Destatis) displays tables with key figures on divorces.
German Pension Insurance provides information on pension equalisation in the event of divorce.
German Pension Insurance offers a brochure on pension equalisation for divorced persons (PDF).
Federal Court of Justice (BGH) provides a judgment on divorce law (PDF).
Haufe offers a specialist article on divorce proceedings, including the consideration of private life insurance policies and occupational pension entitlements.
FAQ
How is the value of an endowment life insurance policy determined in a divorce?
For the equalisation of accrued gains, the surrender value of the endowment life insurance policy is usually relevant as at the date of service of the divorce petition. The insurance company will provide this value on request.
What is the difference between equalisation of accrued gains and pension equalisation in life insurance policies?
Endowment life insurance policies (single lump-sum payment) are usually included in the equalisation of accrued gains (asset equalisation). Life insurance policies with an annuity character (e.g. private pension insurance policies) are divided in the pension equalisation process (equalisation of pension entitlements).
Do I need to change the beneficiary of my life insurance after a divorce?
Yes, that is strongly recommended. Divorce alone does not change the beneficiary designation. If your ex-partner is still listed, they will receive the money in the event of a claim. A change must be actively requested from the insurance company.
Are payouts from endowment life insurance policies taxable after a divorce?
This depends on the contract conclusion date. For contracts concluded before 2005, the payout may be tax-free. For contracts from 2005 onwards, gains are often taxable (flat-rate withholding tax or individual taxation of half the gain under certain conditions).
Can I cancel my endowment life insurance during the divorce proceedings?
Termination is possible, but it is often associated with financial disadvantages (losses). The surrender value is then included in your final assets for the equalisation of accrued gains. It is advisable to seek legal and financial advice before terminating. Alternatives such as premium-free status or sale should be considered.
What happens if my ex-partner has irrevocably been granted the beneficiary right?
An irrevocable beneficiary designation can only be changed with the consent of the registered beneficiary. If this is your former partner and they do not agree, the beneficiary designation remains in place even after the divorce.
