Understanding the Policyholder: Grasping Your Role and Responsibilities
13 Apr 2025
10
Minutes
Katrin Straub
CEO at nextsure
The term policyholder is central in the insurance industry, but what exactly does it entail? Many people are unaware of their exact rights and obligations, which can lead to issues in the event of a claim. This article provides you with a well-founded and practical explanation of what it means to be a policyholder and how you can make the most of your position.
The topic in brief and concise terms
The policyholder is the insurer's contracting party, is responsible for the premium, and has both design rights and claims to benefits.
Important obligations of the policyholder include the duty to provide truthful information before concluding a contract and timely payment of premiums.
The policyholder is not always the same as the insured person; this distinction is relevant for rights and obligations.
Define the core role of the policyholder
The policyholder is the person or legal entity that enters into an insurance contract with an insurance company. This party is responsible for paying the agreed insurance premiums and, in return, receives the insurance coverage specified in the contract. In over ninety percent of cases, the policyholder is also the insured person. The exact definition and associated responsibilities are defined in the Insurance Contract Act (VVG). A clear understanding of this role is the first step towards effective risk management.
The importance of the policyholder goes beyond merely entering into the contract. He or she holds the rights to modify the contract, for example, by cancelling the contract or requesting changes. This central position requires awareness of the consequences of each decision. For example, the choice of the sum insured determined by the policyholder can make a difference of several thousand euros in the event of a claim. Therefore, understanding one's position is essential for every policyholder.
Overview of the rights and obligations of the policyholder
As a policyholder, you enjoy a range of rights that ensure your protection. Foremost among these is the right to the agreed insurance benefit in the event of a claim. You also have comprehensive rights to information regarding all contract details and can initiate contract amendments if necessary. An important right is the right to cancel, for example, in the event of a premium increase of more than five percent without a corresponding increase in benefits. The exact conditions for this can be found in your insurance policy.
However, these rights are also accompanied by obligations, compliance with which is crucial for the continuation of insurance coverage. The primary obligation is the timely and full payment of insurance premiums. Another key duty is the duty of pre-contractual disclosure: all circumstances relevant to risk must be truthfully communicated to the insurer when applying. If an applicant, for example, conceals a pre-existing condition when taking out a disability insurance policy, this can lead to the insurer being released from liability. There are also notification obligations during the contract period, for instance, in the event of an increase in risk. Breaching these duties can have serious consequences, from a reduction in benefits to the loss of insurance cover.
Quick Facts: Policyholders at a Glance
For a quick understanding of the role of the policyholder, here are the key points summarised. These facts provide an initial orientation.
Contracting Party: The policyholder is the direct contracting party of the insurer and is responsible for the premium.
Rights to Modify: They have the rights to modify the contract, such as termination or alteration.
Entitlement to Benefits: In the event of a claim, the policyholder is entitled to the agreed benefits.
Duty to Inform: They must inform the insurer of all relevant circumstances (duty of disclosure).
Premium Payment: Timely payment of premiums is a primary obligation.
Insured Person: Often, but not always, the policyholder is also the insured person.
These core points highlight the crucial and active role a policyholder plays in the insurance relationship. Awareness of these aspects is essential for a successful contractual relationship.
Practical Examples: The Policyholder in Everyday Life
To make the role of the policyholder more tangible, let's consider some everyday situations. Suppose Mr Müller takes out motor liability insurance for his new car. In this case, he is the policyholder and usually also the owner and the insured person. He pays a monthly premium of 70 euros. If he causes an accident, he reports the damage as the policyholder to his insurance company, which then covers the costs of the other party involved in the accident. If Mr Müller were to report the damage only after three months, the insurance could reduce the benefits.
Another example is Ms Schmidt, who takes out household contents insurance for her flat. She is the policyholder. In the event of a burglary theft where items worth 5,000 euros are stolen, she reports the damage. The insurance company assesses the case and provides compensation. If Ms Schmidt had stated a sum insured that was too low when taking out the insurance (e.g., only 20,000 euros for an actual value of 40,000 euros), this could lead to underinsurance and thus to a proportional reduction in benefits. These examples demonstrate the importance of fulfilling obligations correctly and understanding the details of the contract. Consider whether in your building insurance the policyholder is not the owner, as this may raise particular issues.
Expert knowledge: Legal foundations and current judgments
The legal basis for the relationship between policyholder and insurer is the Insurance Contract Act (VVG). This law governs the rights and obligations of both parties in detail. Particularly relevant are the sections on disclosure obligations (§ 19 VVG), on breaches of duty (§ 28 VVG), and on termination (§§ 39-40 VVG). A violation of the disclosure obligation, such as concealing a dangerous sport when taking out accident insurance, can entitle the insurer to withdraw from the contract or refuse to provide benefits. Many policyholders underestimate the significance of the disclosure obligation before concluding the contract.
Recent court rulings continuously refine the interpretation of the VVG. For instance, the Federal Court of Justice (BGH) has repeatedly ruled on the circumstances under which grossly negligent causation of an insured event leads to a reduction in benefits (e.g. BGH, ruling of 22 June 2011 – IV ZR 225/10). A ruling by the Munich Higher Regional Court (20 July 2018 – 25 U 1277/18) reaffirmed that a breach of the duty to mitigate loss can lead to a refusal of benefits. It is advisable to seek legal advice in complex situations or disputes with the insurer. Knowledge of the insurance policy is fundamental in this regard.
Our expert tip: Carefully document all information and notifications to your insurer. In case of a dispute, comprehensive documentation, such as the exact time of a damage report, can be crucial. Keep copies of all correspondence and the application form for at least the statutory limitation period of three years.
Policyholder and insured person: An important distinction
It is important to differentiate between the policyholder and the insured person, even though these roles are often filled by the same individual. The policyholder is the contractual partner of the insurer and holds the rights and obligations arising from the contract. The insured person is the one whose life, health, or property the insurance coverage pertains to. A classic example of this distinction is when parents take out accident insurance for their child. The parents are the policyholders, while the child is the insured person. In this scenario, the parents, as the policyholders, receive the insurance benefits should anything happen to the child.
This distinction has practical implications. Only the policyholder can alter the contract, terminate it, or request information from the insurer. Without the policyholder's consent, the insured person generally does not have direct contractual claims against the insurer unless they are also the beneficiary. This differentiation is particularly relevant in life insurance or when there are different holders and policyholders in motor insurance. Therefore, clearly defining these roles in the insurance certificate is of great importance.
Changing the Policyholder: What Should Be Considered?
Changing the policyholder is possible under certain circumstances and means that another person or legal entity takes on the existing rights and obligations of the insurance contract. This often occurs in the field of life insurance, for example, when a policy is sold on the secondary market. The original contract remains in place, with only the contracting party on the policyholder's side changing. Such a change requires the insurer's consent. Typically, the new policyholder must assume all obligations, including the payment of premiums.
A practical example is the transfer of an endowment policy. Suppose Mr Klein has a life insurance policy with a surrender value of €10,000 and wants to terminate it early. Instead of cancelling, he can sell it to a specialised buyer (new policyholder), who often pays a higher price than the surrender value. The insurer must agree to this change. Such a change can have tax implications and should be carefully considered. Even in the event of a death, taking over a motor insurance policy can represent a change of policyholder. Make sure to inform yourself in advance about the conditions and possible impacts.
Recommendations for Policyholders
Conclusion: Actively shape your role as a policyholder
More useful links
Wikipedia provides a comprehensive overview of the role of the policyholder in insurance law.
The Federal Ministry of Finance provides information about the insurance tax and its legal foundations in Germany.
FAQ
Who is the policyholder?
The policyholder is the natural or legal person who enters into an insurance contract with an insurance company. This person is obliged to pay the insurance premium and is entitled to the insurance benefits in accordance with the contract.
What are the main obligations of a policyholder?
The main obligations include the timely payment of insurance premiums, the truthful answering of all questions from the insurer before the contract is concluded (pre-contractual duty of disclosure) and during the term of the contract, as well as the prompt reporting of a claim.
What happens if the policyholder breaches their obligations?
A breach of obligation (breach of duty) can, depending on its severity and fault, lead the insurer to reduce the benefit, refuse it altogether, or terminate the contract. In the case of fraudulent misrepresentation, the contract can be contested.
Can the policyholder withdraw from the contract?
Yes, policyholders generally have a statutory right of withdrawal of 14 days after receiving the contract documents. In addition, there are rights of termination, such as at the end of the contract or extraordinary termination rights in the event of premium increases.
Is the policyholder always the insured person?
No, not necessarily. The policyholder can also take out insurance in favour of another person (insured person). Example: A father (policyholder) takes out accident insurance for his child (insured person).
Where can I find information about my rights and obligations as a policyholder?
The specific rights and obligations arise from your insurance contract, the General Terms and Conditions of Insurance (GTCI), and the Insurance Contract Act (ICA). Your insurance policy also contains important information.
