Protecting Children in the Event of Death: A Comprehensive Guide for Responsible Parents
07.04.25
3
Minutes
Katrin Straub
Managing Director at nextsure
The thought of one’s own death is difficult, but for parents, securing their children’s future is essential. This article shows you how to safeguard your children’s future with term life insurance, guardianship provisions and smart financial decisions. Find out which steps are needed now to avoid financial hardship and uncertainty in an emergency.
The topic in brief and concise terms
A term life insurance policy with a sum insured of at least three to five times annual gross income is essential to secure the children’s standard of living.
A handwritten custody directive is essential in order to designate a preferred guardian for the children and avoid court decisions.
Children have an inheritance tax allowance of €400,000 per parent; early estate planning can save tax.
Immediate measures: The key facts about children’s protection
Protecting your children in the event of your death requires immediate action and clear decisions. Term life insurance is often the first thought to cover the loss of income; experts recommend a sum insured of at least five times gross annual salary. Equally important is a guardianship declaration, which must be handwritten in order to name the guardian you want for your children. Without this declaration, the family court decides who takes over guardianship, which is not always in the interests of the parents or children. Also think about inheritance tax: children have an allowance of four hundred thousand euros per parent. These first steps form the foundation for protecting your children as well as possible.
Ensuring financial stability: Which insurance is right?
Financial protection for your children in the event of your death is a central pillar of financial planning. Term life insurance is an important instrument here, as it pays out an agreed sum in the event of death and can therefore cover ongoing costs such as property finance or the children’s education. The sum insured should be chosen so that it secures the family’s standard of living for several years; often, three to five times the annual gross income is recommended. Another option is education insurance, which is specifically designed to secure a child’s education costs by paying in regular contributions that are paid out at a specified time, usually on the eighteenth or twenty-fifth birthday. This often combines elements of endowment life insurance with term life insurance. It is important to compare the various offers carefully, because the state orphan’s pension to which children are entitled is often low; children who have lost one parent receive only ten per cent, and those who have lost both parents twenty per cent of the deceased person’s pension entitlement, which often amounts to less than one hundred euros per month. Careful selection and sizing of the right insurance products is crucial in order to close financial gaps.
Practical example of term life insurance: A calculation
To illustrate the need for term life insurance, let us consider a young family with two children aged three and five. The main earner has an annual gross income of sixty thousand euros. To provide for the family until the children have finished their education (assuming until the younger child reaches the age of twenty-five, i.e. for twenty years), and to cover ongoing loans of one hundred and fifty thousand euros, the following requirement arises:
Recommended cover (rule of thumb: five annual salaries): 5 * 60.000 € = 300.000 €.
Outstanding loans: 150.000 €.
Total cover required: 300.000 € + 150.000 € = 450.000 €.
This sum of four hundred and fifty thousand euros should be covered by the term life insurance at a minimum. Many people underestimate the amount of cover actually needed to truly secure the family’s standard of living and the children’s educational opportunities. A term life insurance policy can provide comprehensive protection here for relatively low premiums. The exact premium depends on factors such as age, health status and term. Addressing this topic early on pays off.
Arranging custody: Who will care for the children?
Aside from financial provision, making arrangements for guardianship is a fundamental aspect of protecting your children in the event of your death. If both parents die, the family court decides on guardianship if no guardianship directive is in place. In such a directive, you can set out in writing who should be appointed as guardian for your minor children. It is advisable to also name a substitute. The court is bound by your wishes unless they conflict with the child’s best interests, for example if the named person is themselves in need of care. Important to know: godparents do not automatically receive guardianship. The guardianship directive should include the following points:
Naming the guardian you would like to appoint (if applicable, also for specific areas such as personal care and financial care).
Naming a substitute guardian.
Where appropriate, excluding certain persons as guardian (with reasons).
Handwritten, dated and signed by both parents (for married couples, a joint directive is sufficient; for unmarried couples, separate directives are required).
A clear guardianship arrangement spares children additional uncertainty in an already difficult time. Careful selection and consultation with the prospective guardian is essential. This ensures that your children end up in familiar and loving hands.
Expert depth: inheritance law aspects and tax allowances
On death, the statutory succession rules apply if no will exists. Children are heirs of the first order and inherit in equal shares. Until the age of majority at eighteen, the guardian manages the inheritance. One important point is inheritance tax. For children, a personal tax-free allowance of four hundred thousand euros per child and per deceased parent applies. This allowance can also be used every ten years for gifts made during one’s lifetime. For spouses, the allowance is five hundred thousand euros. If assets exceed these allowances, inheritance tax becomes payable, the amount of which depends on the degree of relationship and the level of the taxable acquisition (tax rates between seven and fifty per cent). Our expert tip: Careful estate planning, for example through gifts made during one’s lifetime or by choosing the right policy structure for life insurance (e.g. cross-insurance for unmarried couples), can significantly reduce the tax burden. For owner-occupied residential property, tax exemptions are available under certain conditions if the heirs continue to live in the property for at least ten years and the living space does not exceed two hundred square metres (applies to spouses and, in some cases, also to children). Early advice on family protection can save a considerable amount of money here. The complexity of inheritance law and tax legislation often makes expert advice essential.
State support: What do orphan's pension and child benefit provide?
If parents die, children are not left entirely without state support. The half-orphan’s or full orphan’s pension is intended to at least partially offset the financial loss. In general, entitlement to an orphan’s pension exists until the age of eighteen, or until a maximum age of twenty-seven if in training or studying. The amount of the full orphan’s pension is twenty per cent of the deceased parent’s pension with the higher pension entitlement, provided that parent paid into the state pension scheme for at least five years. For half-orphans, it is ten per cent. Child benefit is also paid until at least the age of eighteen. However, these state benefits are often not enough to maintain the accustomed standard of living or finance an education. The average reduced earning capacity pension, which serves as the basis for the orphan’s pension, was around eight hundred and seventy euros per month before tax in 2020. For children, this often means a monthly orphan’s pension of less than one hundred euros. A private term life insurance policy is therefore usually essential to close the provision gap. Knowing this gap is the first step towards the right financial provision.
In addition to immediate protection in the event of death, many parents also think long term about their children’s education. An education insurance policy is one way to save up capital specifically for university or vocational training. It works similarly to a whole-of-life policy and is often combined with a risk component, so that the savings goals are still achieved if the policyholder dies. The payout is made at a fixed point in time, for example on the child’s eighteenth birthday. The cost of a six-semester bachelor’s degree can quickly reach sixty thousand euros. [,5,,] Alternatively, parents can also build up a financial cushion for their children’s education through unit trust savings plans or other forms of investment. The important thing here is to start early: even small monthly amounts, such as twenty-five euros, can grow into a substantial sum over many years. Planning education costs early provides peace of mind and enables children to shape their professional path more freely. Comprehensive advice helps you find the right strategy for your family.
Checklist and next steps: How to best protect your children
Protecting your children in the event of your death is a process that requires careful planning. To make it easier for you to get started, we have put together a checklist with the most important steps:
Carry out a needs analysis: How high is your family’s financial need really? Take ongoing costs, loans and education costs into account.
Take out or adjust term life insurance: Make sure the sum insured is sufficient (at least three to five times annual gross salary).
Draw up a guardianship directive: Name a guardian and a substitute in writing by hand.
Draw up a will: Set out how your estate is to be distributed in order to prevent disputes.
Build up financial reserves for education: Check options such as education insurance or savings plans.
Organise important documents and keep them accessible: These include insurance policies, will, guardianship directive and birth certificates.
Regular review: Adjust your precautionary measures every three to five years to changing life circumstances.
The most important step is simply to start. Do not hesitate to seek professional support to find the solutions that suit your individual situation. Comprehensive precautionary planning gives you the peace of mind that you have done everything necessary for your children’s future. In this way, you create a solid basis for the further life planning of your loved ones.
Request your individual risk analysis now
Protecting your children is one of the most important responsibilities as parents. However, the complexity of the various insurance products, legal regulations and financial aspects can be overwhelming. At nextsure, we understand your needs and, as a digital insurance portal, help you find tailored and easy-to-understand insurance solutions. Our mission is to offer you comprehensive niche insurance and individual protection solutions. Benefit from our expertise for your security.
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More useful links
The German Pension Insurance provides detailed information about orphan's pension and its requirements.
The German Pension Insurance offers a comprehensive overview of survivors' pensions.
You can find the appropriate application pack for claiming orphan's pension from the German Pension Insurance.
Information on guardianship for children and young people is provided by the initiative Unterstützung, die ankommt.
The exact legal text on § 1680 BGB concerning the suspension or limitation of parental responsibility can be found on the website of the Federal Ministry of Justice.
The corresponding Wikipedia article offers a general overview of orphan's pension.
Current data on infant mortality in Germany are available from the Federal Statistical Office.
FAQ
Which insurance is the most important for protecting my children in the event of my death?
Term life insurance is considered one of the most important types of insurance, as in the event of death it pays out an agreed sum intended to cover the loss of income and to finance the children’s education.
How do I appoint a guardian for my children?
You appoint a guardian through a custody directive written and signed by hand. For married couples, a joint directive is sufficient; unmarried couples need one each.
What is the difference between term life insurance and endowment life insurance?
Term life insurance provides pure death cover and pays out only if the insured person dies. Whole life insurance also serves to build up capital for retirement provision.
Can grandparents also take out an education insurance policy for their grandchildren?
Yes, grandparents can also take out an education insurance policy to provide for their grandchildren’s education costs. The child is then the beneficiary.
How can I minimise inheritance tax for my children?
By making use of allowances (€400,000 per child and parent), lifetime gifts (the allowance can be used every ten years), or clever policy structuring in insurance, inheritance tax can often be reduced.
Where should I keep my guardianship directive?
You can file the custody order with your personal precautionary documents at home, with the appointed guardian, with a notary or with the probate court. It is important that it can be found quickly in an emergency.
