Protecting children in the event of death: A comprehensive guide for responsible parents
7 Apr 2025
11
Minutes
Katrin Straub
CEO at nextsure
The thought of one's own death is difficult, yet 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 arrangements, and smart financial decisions. Discover the necessary steps to take 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 the annual gross income is essential to secure the children's standard of living.
A handwritten custody disposition is essential to appoint a guardian of choice for the children and avoid court decisions.
Children have an inheritance tax allowance of €400,000 per parent; early estate planning can save taxes.
Immediate measures: The key facts about child protection
Protecting your children in the event of your death requires immediate action and clear decisions. A term life insurance policy is often the first consideration to compensate for the loss of income; experts recommend a sum insured of at least five times the gross annual salary. Equally important is a guardianship arrangement, which must be written by hand, to appoint the desired guardian for your children. Without this arrangement, the family court decides who will take guardianship, which isn't always in the best interests of the parents or children. Also, consider inheritance tax: children have an allowance of four hundred thousand euros per parent. These initial steps form the foundation to protect your children as best as possible.
Ensuring Financial Stability: Which Insurance is Right for You?
Ensuring financial security for your children in the event of death is a central pillar of planning for the future. Term life insurance is an important tool in this regard, as it pays out an agreed sum in the event of death, which can cover ongoing expenses such as a mortgage or the children's education. The insurance sum should be chosen to secure the family's standard of living for several years; it is often recommended to be three to five times the annual gross income. Another option is the education insurance, specifically designed to cover a child's education costs by regularly contributing premiums that are paid out at a set time, usually when the child reaches their eighteenth or twenty-fifth birthday. This often combines elements of a whole life insurance with a term life insurance. It is important to carefully examine the various offers, as the state orphan's pension, which children are entitled to, is often low; half orphans receive only ten percent, and full orphans twenty percent of the deceased’s pension entitlement, which often means less than one hundred euros per month. The careful selection and sizing of suitable insurance products is crucial to close financial gaps.
Practical Example Term Life Insurance: A Calculation Approach
To highlight the necessity of term life insurance, let's consider a young family with two children aged three and five. The main earner has an annual gross income of sixty thousand euros. To secure the family until the end of the children's education (assumed until the younger child is twenty-five years old, so for twenty years), and to cover ongoing loans of one hundred and fifty thousand euros, the need is as follows:
Recommended coverage (rule of thumb: five times annual salary): 5 * 60,000 € = 300,000 €.
Ongoing loans: 150,000 €.
Total coverage requirement: 300,000 € + 150,000 € = 450,000 €.
This sum of four hundred and fifty thousand euros should be the minimum covered by the term life insurance. Many people underestimate the necessary insurance amount to truly secure the living standards and educational opportunities of the children. A term life insurance can offer comprehensive protection for relatively low premiums. The exact premium depends on factors such as age, health condition, and term length. Addressing this matter early is worthwhile.
Deciding custody: Who takes care of the children?
Besides financial security, the regulation of custody is a fundamental aspect to protect your children in the event of death. If both parents die, the family court decides on guardianship if no custody arrangement exists. In such an arrangement, you can specify in writing who should be appointed as guardian for your minor children. It is advisable to also name an alternate person. The court is bound by your wishes unless they conflict with the child's best interests, for example, if the person named is in need of care themselves. Important to know: Godparents do not automatically receive custody rights. The custody arrangement should include the following points:
Appointment of the desired guardian (possibly also for specific areas such as personal care and financial care).
Appointment of an alternate guardian.
Possibly excluding certain individuals as guardians (with justification).
Handwritten form, date, and signature of both parents (for married couples, a joint arrangement is sufficient; for unmarried couples, separate arrangements are necessary).
A clear custody arrangement saves the children from additional uncertainty in an already difficult time. Careful selection and agreement with the potential guardian are essential. This ensures that your children come into familiar and loving hands.
Expert Depth: Inheritance Law Aspects and Tax Allowances
In the event of death, the statutory order of succession applies if there is no will. Children are heirs of the first order and inherit in equal shares. Until the age of majority at eighteen, the guardian administers the inheritance. An important point is the inheritance tax. Children have a personal allowance of four hundred thousand euros per child and per deceased parent. This allowance can also be used every ten years for lifetime gifts. For spouses, the allowance is five hundred thousand euros. If the assets exceed these allowances, inheritance tax is due, the amount of which depends on the degree of kinship and the amount of the taxable acquisition (tax rates between seven and fifty percent). Our expert tip: Skilled estate planning, such as lifetime gifts or choosing the right contract design for life insurance (e.g., cross-insurance for unmarried couples), can significantly reduce the tax burden. There are tax exemptions for owner-occupied residential property under certain conditions if the heirs continue to live in the property for at least ten years and the living area does not exceed two hundred square meters (applies to spouses and possibly also to children). Early advice on family protection can save real 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?
When parents pass away, children are not left entirely without state support. The half-or full orphan's pension is intended to at least partially offset the financial loss. Entitlement to the orphan's pension generally lasts until the age of eighteen, and if in education or training, up to a maximum of twenty-seven years old. The amount of the full orphan's pension is twenty per cent of the deceased parent's pension with the higher pension claims, provided they have paid into the pension scheme for at least five years. For half-orphans, it is ten per cent. Child benefit is also continued at least until the age of eighteen. However, these state benefits are often insufficient to maintain the usual standard of living or to finance an education. The average reduced earning capacity pension, which serves as the basis for the orphan's pension, amounted to around eight hundred seventy euros per month before tax in 2020. For children, this often means a monthly orphan's pension of less than one hundred euros. Therefore, a private term life insurance is usually indispensable to fill the gap in provision. Knowing this gap is the first step towards the right precaution plan.
Long-term planning for education and studies
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 specifically save capital for university or vocational training. It works similarly to a capital life insurance policy and is often combined with a risk component, ensuring savings goals are met even if the contributor passes away. The payout is made at a fixed point, such as the eighteenth birthday. The cost of a six-semester bachelor's degree can quickly reach sixty thousand euros. Alternatively, parents can also build a financial cushion for their children's education through fund savings plans or other investment forms. Starting early is important here: even small monthly amounts, such as twenty-five euros, can grow into a substantial sum over many years. Early planning of education costs provides security and allows children to shape their career paths more freely. Comprehensive advice helps to find the right strategy for your family.
Checklist and Next Steps: How to Best Protect Your Children
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More useful links
The Deutsche Rentenversicherung provides detailed information about the orphan's pension and its conditions.
A comprehensive overview of pensions for survivors is offered by the Deutsche Rentenversicherung.
You can find the appropriate form package for applying for the orphan's pension at the Deutsche Rentenversicherung.
Information about guardianship for children and adolescents is provided by the initiative Support that Reaches You.
The exact legal text of § 1680 BGB concerning the suspension or limitation of parental care can be found on the German Federal Ministry of Justice's website.
A general overview of the orphan's pension is available in the relevant Wikipedia article.
Current data on infant mortality in Germany is available from the Federal Statistical Office.
FAQ
Which insurance is the most important for securing my children in the event of death?
Term life insurance is considered one of the most important types of insurance because it pays out an agreed sum in the event of death, which serves 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 handwritten and signed custody agreement. For married couples, a joint agreement is sufficient, while unmarried individuals each require their own.
What is the difference between term life insurance and whole life insurance?
Term life insurance is purely a death benefit and only pays out if the insured person dies. Whole life insurance also serves as capital accumulation for retirement planning.
Can grandparents also take out an education insurance policy for their grandchildren?
Yes, grandparents can also take out an education insurance policy to prepare for their grandchildren's education costs. The child is then the beneficiary.
How can I minimise inheritance tax for my children?
Utilising allowances (€400,000 per child and parent), lifetime gifts (allowance available every ten years), or clever contract design for insurance can often reduce inheritance tax.
Where should I keep my custody order?
You can keep the custody order with your personal care documents at home, with the appointed guardian, at a notary, or at the probate court. It is important that it can be quickly found in an emergency.
