Disability insurance: Who covers the costs if your income is lost?
22 Jun 2025
8
Minutes
Katrin Straub
CEO at nextsure
One in four employed people in Germany will become unable to work during their lifetime. When the income suddenly stops, a pressing question arises: Who pays when you are unable to work? This article highlights your options and shows how to avoid financial shortfalls.
The topic in brief and concise terms
The statutory disability pension alone is usually not sufficient to maintain the standard of living in the event of incapacity for work; therefore, a private disability insurance is essential.
A private occupational disability insurance pays an agreed pension if the most recently practiced profession can no longer be practiced to at least fifty percent – often from a forecasted duration of six months.
The tax treatment of disability insurance contributions and benefits depends on the type of pension plan; truthful health disclosures are crucial for claiming benefits.
Financial Security in Case of Occupational Disability: The Most Important Facts
In the event of occupational disability, no single entity automatically steps in. The statutory pension insurance provides an incapacity pension under certain conditions. This is often significantly lower than the previous income. A private occupational disability insurance (BU) pays an agreed pension if you can no longer perform your job by at least fifty percent. Continued payment of wages by the employer ends after six weeks; thereafter, the health insurance pays a maximum of 78 weeks of sickness benefit. Many underestimate the gap in coverage after the sickness benefit expires. Therefore, early private insurance is essential for most employed individuals. This section gives you a quick overview of the key points.
Understanding State Benefits: Detailed Insights into the Disability Pension
The statutory occupational disability pension was abolished for those born after the first of January 1961 and replaced by the reduced earning capacity pension. To receive the full reduced earning capacity pension, one must be able to work less than three hours a day in any job. If one can work between three and less than six hours a day, they receive half of the reduced earning capacity pension. Those who can work six hours or more receive no benefit. Usually, a waiting period of five insurance years and three contribution years within the last five years before the onset of the reduction is required. The average full reduced earning capacity pension was around €900 in 2021. The state reduced earning capacity pension alone rarely suffices to cover living standards. Understanding these details is important for differentiating from occupational disability. The assessment of claims can be complex.
Private occupational disability insurance: Your individual shield of protection
A private occupational disability insurance (BU) pays out if you are unable to perform your most recently practiced profession due to health reasons for at least six months to fifty percent or more. The amount of the pension is agreed upon individually when the contract is concluded. Experts often recommend seventy to eighty percent of net income. Applying requires detailed health questions and medical evidence. Truthful information in the health questions is crucial for future benefits. A private BU insurance is an important pillar of your provision. Pay attention to contractual conditions such as the waiver of abstract references. Ideally, the benefit period should extend up to the statutory retirement age.
Important aspects when choosing a BU are:
Waiver of abstract reference: The insurance must not refer you to another profession that you could theoretically still perform.
Forecast period: Six months is the usual anticipated duration of occupational disability.
Subsequent insurance guarantees: Opportunities to increase the pension without a new health check, for example, in the case of salary increases or marriage.
Benefit dynamics: An agreed upon annual increase in the pension in the event of benefits, to offset inflation.
Premium dynamics: An annual increase in premiums and the insured pension before the onset of occupational disability.
These criteria help find a strong policy. The next section highlights what happens if no private provision has been made.
Without private disability insurance: What happens in case of occupational disability?
Anyone who becomes unable to work and has not taken out private occupational disability insurance will have to rely on state support. Initially, the employer continues to pay wages for up to six weeks. After that, the health insurance takes over with sickness benefits, which amount to seventy percent of the gross income (a maximum of ninety percent of the net income) and are paid for up to 78 weeks. Once the sickness benefits run out, often the only option is to apply for the statutory reduced earning capacity pension. The hurdles for the reduced earning capacity pension are high, and the benefits are usually low. For young people who have not yet fulfilled the five-year waiting period, this entitlement often does not apply at all. Being in a situation without disability protection can quickly lead to financial difficulties. It is important to be aware of the consequences.
Expert knowledge: Legal and tax aspects of occupational disability
The legal basis for a partial disability pension due to occupational disability for those born before the second of January 1961 is found in § 240 SGB VI. For everyone younger, § 43 SGB VI applies concerning disability pensions. For private disability insurance contracts, the Insurance Contract Act (VVG) is decisive. Recent rulings, such as that from the OLG Braunschweig (Case No. 11 U 316/21), demonstrate that fraudulent misrepresentation in the application can result in a refusal of benefits even after ten years. Contributions to independent disability insurance (third tier) are often only limitedly tax-deductible as maximum amounts are usually exhausted by health and care insurance contributions. However, the disability pension from the third tier is only taxed on the low earnings portion and is often tax-free. In contrast, disability pensions from the first tier (e.g. Rürup combination) or second tier (occupational pensions) are (nearly) fully taxable. Our expert tip: Have your earning potential options reviewed. A precise understanding of the legal framework conditions is crucial in case of a claim.
Tax treatment of the disability pension depending on the tier:
First tier (basic provision, e.g. Rürup with disability insurance): Contributions are well deductible (since 2023 at one hundred percent up to the maximum amount). However, the pension is taxed retrospectively (from 2024 at eighty-three percent, increasing to one hundred percent by 2058).
Second tier (subsidised additional provision, e.g. occupational pension with disability insurance): Contributions from gross salary are tax and social security free. The disability pension is fully taxable and subject to social security contributions in the event of benefit payment.
Third tier (private provision, SBU or disability insurance with private pension): Contributions are barely effective for tax purposes. The disability pension is only taxed with the favourable earnings portion, which depends on the remaining term of the pension (e.g. twelve percent earnings portion for a ten-year remaining term).
Choosing the right tier has significant implications. Therefore, careful planning is essential.
Recommendations: How to Ensure Optimal Coverage
A disability insurance policy should be taken out as early as possible, ideally during training or studies, as the premiums are often cheaper. Ensure that the pension amount is sufficient to maintain your standard of living – at least seventy per cent of net income is a good guideline. Compare offers carefully and look out for important contract clauses such as the waiver of abstract reference and insurance guarantee increases. An honest and complete response to the health questions is crucial for any future claims. Obtain medical information to ensure nothing is overlooked. Also, consider a combination with daily sickness benefits to cover the first 78 weeks. The right strategy is crucial for your financial future.
Your next step towards financial security
Addressing the topic of occupational disability is complex but essential for your financial stability. You have now gained an overview of the different benefit providers and the importance of private provision. Taking out suitable occupational disability insurance is one of the most important financial decisions you can make. Do not hesitate to seek professional support to find the best solution for your individual situation. We at nextsure are happy to assist you in securing your ability to work optimally and closing any gaps in provision.
Request your individual risk analysis now: Have your insurance situation reviewed free of charge and receive specific suggestions for optimisation.
More useful links
The German Pension Insurance offers comprehensive statistics and reports on the development of reduced earning capacity pensions.
Destatis, the Federal Statistical Office, provides detailed information on social welfare in Germany.
Destatis issues press releases with the latest statistical data on various topics.
The Federal Ministry of Labour and Social Affairs (BMAS) offers an informative brochure on reduced earning capacity pensions.
The German Pension Insurance provides information on rehabilitation services and their development in figures.
The Federal Institute for Occupational Safety and Health (BAUA) supplies figures, data, and facts on the costs of incapacity for work.
The Federal Agency for Civic Education (bpb) explains the benefits and financing of pension insurance.
FAQ
Who pays if I become unable to work?
In the case of occupational disability, various parties may provide financial support: initially, the employer (continued payment of wages for up to six weeks), then the health insurance (sickness benefit for up to 78 weeks). In the long term, the statutory pension insurance may pay a disability pension, or if applicable, your private occupational disability insurance may provide an occupational disability pension.
Does the state always pay in case of occupational disability?
No, the state does not automatically pay out. For those born after 1961, there is no longer a statutory occupational disability pension, only the reduced earning capacity pension. This is subject to strict conditions (e.g., less than three hours of daily working capacity for a full pension) and requires a minimum insurance period.
Do I have to pay taxes on my disability pension?
Yes, disability pensions are generally subject to tax. For private disability pensions (third tier), only the small income portion is taxed, which often results in no or low tax burden. In contrast, disability pensions from Rürup contracts (first tier) or occupational pension schemes (second tier) are (almost) fully taxable.
What is more important: state or private insurance?
The state disability pension often only provides basic cover. To maintain their standard of living, a private occupational disability insurance is essential for most employed people as it pays an individually agreed pension based on the last occupation held.
What does "abstract referral" mean in the context of disability insurance?
Abstract referral means that the insurer could refuse the benefit if, in theory, you could still pursue another profession that matches your education and experience – even if you cannot find a specific position. Good disability insurance policies waive this clause.
How long do I receive a disability pension?
The private occupational disability pension is paid for as long as the disability persists, but no longer than the contractually agreed end age (ideally the retirement age). The statutory reduced earning capacity pension is also paid until reaching the standard retirement age, provided the conditions continue to be met.
