Occupational disability insurance for the self-employed – it’s the details that count! (2020)
In this expert article you will learn what is important when it comes to occupational disability for the self-employed. As a self-employed person and entrepreneur, you are usually responsible for your own insurance. That makes this coverage almost even more important for you as a self-employed person than for an employee. We have already explained the basics of occupational disability insurance in a separate article. This article is intended to give you a meaningful overview and to help you find the right tariff.
Overview of expert articles on disability insurance for the self-employed
Why do the self-employed need private disability insurance?
As a self-employed person, during the first five years of your self-employment you have the opportunity to make a binding decision as to whether you want to take out voluntary statutory pension insurance. Few of them decide to do so and take private precautions. Some professional groups are supposedly covered by associated pension schemes. The question is whether you are adequately covered in the worst case scenario. Let’s take a look at how the state can help you in an emergency.
Not in the statutory pension insurance
The largest group of the self-employed do not voluntarily pay into the statutory pension insurance and do not belong to any pension scheme. As a result, there is no entitlement to a state disability pension. The carrier of this protection is namely the German Federal Pension Insurance. In addition, in this case you will not even enjoy insurance coverage through the statutory accident insurance. So if you become incapacitated for health reasons or as a result of an accident, both you and your company are threatened.
What then may still remain is the basic security. How you twist and turn it. If you rely on the state here, then it is your own fault.
Just imagine that overnight you don’t earn any money for more than half a year. For most of the self-employed, this means financial ruin.
Voluntarily in the statutory pension insurance
Some self-employed pay into the statutory pension insurance voluntarily. These may be entitled to Disability pension. We have already explained in detail in an expert article what the exact requirements are and why this pension is not sufficient in an emergency.
In a nutshell, you will only receive the partial disability pension if you can only work for less than six hours in whatever profession. This has nothing to do with your current job. You will only receive the full disability pension if you can work for less than three hours. In the associated expert article, we have shown exactly why this pension would not be high enough.
How much is the disability pension?
On average, a new pensioner in 2018 received just under € 735 a month due to reduced earning capacity. This should illustrate the scale that we are talking about here. That number was in one Annual report of the German pension insurance released.
The chance of receiving a disability pension from a pension fund is incredibly small. This group includes, for example, doctors, dentists, architects, artists, engineers, lawyers, tax consultants and many more. An even stricter standard is applied here than for the state disability pension. According to the definition of most pension funds, you are only unable to work if you can no longer work 100% of the time.
In many federal states this means that you even have to lose your license as a lawyer or tax attorney. As a doctor, this is roughly equivalent to the forced return of your license to practice medicine.
Abstract reference possible
Here, as a rule, an “abstract” test is carried out to see whether you can still use your skills in any form. This can be, for example, “only” teaching or research in this or a related area. Reference can therefore be made here in the abstract.
In the federal states, the regulations usually differ in detail. Basically you can remember as a rule of thumb:
An occupational disability pension from the pension fund is only available if you are 100% disabled.
In none of the three possible cases are you really well protected. This means that we can really speak of an existential threat here. Not just for you and your family. Possibly for your company too. This is why good disability insurance is almost even more important for the self-employed than for employees.
Video on the BU for the self-employed
What does a self-employed person have to consider in addition to the BU?
As a self-employed person, you have to set up your labor insurance somewhat differently than an employee. There are points here that you should also pay attention to.
Daily sickness allowance insurance
As a self-employed person, daily sickness allowance insurance is very useful. A fixed daily rate that you want to insure is agreed here. You will receive this if you are on sick leave for longer than what is stipulated in the contract. Unlike an employee, you can decide more flexibly here when you want to claim the daily sickness allowance. As a rule, the employee receives 42 days of continued wages. Thereafter, the agreed daily sickness allowance is added to the sickness benefit from the health insurance company. The sickness benefit amounts to almost 70% of the last monthly gross amount.
No sick pay for self-employed
You do not receive this sick pay as a self-employed person. That’s why you need a much higher daily sickness allowance rate.
In the case of self-employed persons, depending on the occupational group, the start of payment is already possible after 4-8 days. But you can adjust this individually to your needs.
Daily sickness benefit insurance can help you if you cannot work for a period shorter than six months. A longer illness can be intercepted financially.
As a privately insured person, you may have already agreed on this module. If not, that’s not a problem. You can also take out daily sickness allowance insurance with other insurers.
AU clause not absolutely necessary
In the case of occupational disability insurance for the self-employed, Incapacity for work clause not mandatory. As a self-employed person, daily sickness allowance insurance makes more sense. It is only important to know that there is a distinction between “incapacitated” and “incapable of work”. Incapacity for work is certified by the “yellow certificate”.
This clause covers a special case, which is usually only clearly defined in the insurance conditions for employees. With the self-employed, problems arise far too often. If this clause is included in your appropriate tariff anyway, that would be a small bonus. With a sufficient daily sickness allowance, however, you are on the safer side. The incapacity for work clause is not one of the must-haves.
But if you take it with you anyway and already have daily sickness allowance insurance, there is a so-called obligation. An obligation is not a direct obligation. However, the insurer is entitled to reduce or refuse the benefit if obligations are breached. In this case, you should speak to your daily sickness allowance insurer. Clarify whether you can complete a BU with an AU clause without problems. In the event of overlaps, insurers can disagree.
Private accident insurance is not enough
The self-employed are not legally insured against accidents. A sensible alternative here is private accident insurance. The private accident insurance However, it expressly does not replace occupational disability insurance for the self-employed. It only aims to ensure that you receive a high one-off payment in the event that you suffer a lasting disability from an accident. You can see it as a supplement to disability insurance.
The occupational disability insurance for the self-employed provides you with a monthly pension if you should become disabled. Private accident insurance makes a one-off payment in the event of persistent disability. Both insurances are justified. But they protect different things.
Only just under 10% of the incapacity for work are caused by accidents. Even if your accident insurance even includes an accident pension, that will only help you in one out of 10 cases.
For most of the self-employed this condition is fulfilled, but:
There is a prerequisite for the payment of a disability pension for the self-employed. Namely, that you made a profit with your company in the previous year. If this is not the case, you will not be entitled to a disability pension.
When is a self-employed person unable to work?
In the case of a self-employed person, it is not as easy to prove disability as it is for an employee. The classic definition of the term occupational disability is for most insurers:
You are considered to be unable to work if you can only do less than 50% of your last job, qualitatively or quantitatively. And that for a forecast period of at least six months.
Proving evidence for a solo self-employed person is still relatively straightforward. You work yourself and have no one to delegate things to. If you meet the definition, you will receive the disability pension. Of course, you have freedom because you decide what to do when and how. Here it must then be clearly demonstrated that more than 50% of your health reasons mean that you can no longer work.
Not only is your state of health checked, but in particular whether you can continue your relevant activities to more than 50% with this state of health.
In the case of managing directors, the classification is based on the last actual activity performed. Factors are the proportion of travel activity, the proportion of administrative activities and whether you still work in the company yourself. In the example of a craftsman, this means whether you still lend a hand yourself.
The contribution increases with increasing personal responsibility. In the event of occupational disability, the reorganization clause is important. This will largely decide whether you will receive the BU pension or not. The more employees you have, the more you can delegate. If necessary, you can still work as a managing director without being able to carry out all of the previous activities. This is highly individual and must be checked on a case-by-case basis.
Important clauses at the BU for the self-employed
The most important special clause in the disability insurance for the self-employed is the reorganization clause. It largely decides whether you will receive a BU pension. We’ll go into this again in a moment. A few other important points in advance.
As a doctor, veterinarian or dentist, a good infection clause is an absolute must. This also applies to self-employed people in the food industry. This clause adds another performance trigger to the BU protection. That is, an event that leads to the payment of the BU pension. We’ll stick with the doctor’s example.
A doctor is in constant contact with patients and thus a multiplier of diseases. And this is especially true for people who have previously been ailing or are at increased risk. It is possible that this person will be banned from working under the Infection Protection Act. Even if he were physically able to work without any problems.
The infection clause ensures that this is seen as a performance trigger. It is usually included with the top insurers. Nevertheless, you should have this confirmed again in individual cases if you fall into the said professional groups.
Follow-up insurance guarantee
Good conditions with regard to the additional insurance guarantee are important. This allows you to increase your coverage without a new risk assessment if your circumstances so require. The longer and more detailed the list of performance triggers here, the better. Examples of triggers can be marriage, divorce, the birth of a child, or the construction of a house.
Changes in living conditions often require adaptation in order to ensure adequate protection.
Almost all insurers have included this clause in some form. The devil is in the details here. The insurer is thereby entitled to ask you to reorganize your business. In the best case scenario, the insurer waives the need for you to reorganize operations. But that is extremely rare. Spongy formulations are not uncommon here. However, good insurers clearly define when a reorganization is reasonable for you.
The concept of reasonableness is not clearly defined in many insurance conditions. An example should illustrate what the insurer is allowed to do in the worst case with poorly formulated conditions:
The owner of a food truck has to buy fresh goods every day. He suffers a knee injury which prevents him from bending down and which means that he can no longer lift the heavy boxes. Basically he is then unable to work. Now many insurers are allowed to move you to reorganize.
In order to continue operations, the insurer could suggest hiring a € 450 jobber to do this work for him.
But exactly that depends on the conditions. Perhaps the required reorganization is stupid from your point of view.
Two types of insurers
From this perspective, insurers can be roughly divided into two groups.
Case 1: The insurer has clearly defined conditions (top protection)
He only does not pay the BU pension if these are not met. In line with market practice, income reductions of less than 20% are defined as reasonable. For some it’s not a problem. But that doesn’t work for the other. In addition, the two points listed below are contractually stipulated.
Case 2: No clearly defined reorganization clause (a lot of room for interpretation)
That’s just in the interests of the insurance company. This can always urge you to reorganize yourself if it deems it reasonable. Of course only within the legal limits. However, if an insurer can move freely within these limits and exploit them at will, that is not necessarily consumer-friendly. We strongly advise self-employed people not to do this. Such tariffs fly around the ears at the latest in the event of a claim.
What is it primarily about?
If you should really be unable to work, only one thing counts for you: That the insurer pays. However, depending on the definition, this clause can represent a backdoor for the insurer not to pay you the pension. Be smart and make sure that this back door is closed on your disability insurance for the self-employed.
Even people who can imagine becoming self-employed at some point should also pay attention to this when taking out disability insurance. What can happen if the BU only re-closes when the time comes? New illnesses may result in supplements or you may be rejected entirely.
No reorganization among academics
Some insurers are not examining the reorganization. Namely, if you have an academic degree and min. 90% performs administrative activities. This is a small bonus over others if you have such a degree in your pocket.
Refraining from reorganization if fewer than 5 employees
Some insurers also waive the test if the company, including the managing director, consists of a maximum of 4 people. If this is formulated in the contract, then our food truck chef has no problems in our example.
Some insurers have contractually stipulated a reorganization aid. That means that they will support you financially in the reorganization. In a specific case, this can be six monthly pensions, for example. You will receive this as support in the form of a one-off payment. There are maximum limits from insurer to insurer. A possible maximum limit here could be € 12,000.
This can be quite useful. As a self-employed person, you usually have a (comparatively) high level of motivation to continue the business. If this is possible with this help, you will surely be grateful afterwards.
How high should the BU pension for the self-employed be?
As a full-time self-employed person, you quickly earn significantly more than an average employee. But this also means that you probably have a relatively high standard of living.
How much BU pension do I actually need?
This question must be answered individually for each person. If all income would be lost overnight, what would you need at least monthly for a dignified life? You know your fixed costs. Rent, car, family, food and much more. You certainly want to “live” too. Holidays and activities are still possible in most cases of occupational disability. You should still be able to shape your life with dignity. Do not misunderstand the disability pension as a guarantee of a minimum existence. Both you and your family will thank you when you benefit.
Insurance as a self-employed person
Please do not forget that as a self-employed person you are solely responsible for the contributions of your insurance. This includes, in particular, contributions to private health insurance and also your private pension. In addition, you certainly won’t want to stop putting money aside each month and building a fortune. If you reduce your savings rate to € 0 in these two areas, you will only shift the financial catastrophe towards retirement. That is not an adequate solution. Your BU pension should also be able to absorb that.
Here you are very quickly at 2000 € upwards in order to continue to lead a dignified life. Often the need is even significantly higher.
The state has been planning to introduce the Compulsory pension insurance for the self-employed. This is laid down in the coalition agreement. You should be prepared for that too.
Basic requirement for a BU pension over 1500 €
The following hurdle applies to occupational disability insurance for the self-employed. An individual financial adequacy test is required for a monthly pension of € 1500 or more. This limit may vary with some insurers. There is an extra questionnaire that you have to fill out. Here are a few points to consider.
Secure a BU pension for the self-employed over € 2500 per month
From this point on it gets a bit tricky. If you want to take out a disability pension of over 2500 € per month with an insurer, a medical examination is (often) necessary. The classic arc of health issues is no longer sufficient here. This results in a disadvantage in the classic way:
Attention with medical check!
If you actually do the medical checkup, it can happen that diseases are diagnosed that you did not know about before. On the one hand, of course, it’s good that you then know. On the other hand, this can mean that there is a risk premium or you may even be rejected. Then, when things go bad, you stand there without any protection.
Central storage of the rejection
If necessary, the rejection is saved centrally for all insurers to see. In this directory all companies always check before signing a new contract. That can be the death sentence for your disability protection. Most insurers do not even bother looking at your application more closely if you have already been rejected elsewhere.
Options to bypass the medical check
There are several options that you can take to ensure a sufficient pension. And without the risk of standing there completely without protection. Here, however, a clear strategy is necessary as required. Going it alone can end badly in the area of occupational disability insurance for the self-employed. Especially if you are in the BU pension of € 2500 and higher.
We hope that this article has shed some light on the darkness for you. For the self-employed, occupational disability insurance is, strictly speaking, the only way to really cover the workforce in a comprehensive manner. As a self-employed person in particular, you cannot rely on the state to take care of you in any way. For the end you should get an expert at your side who will discuss all the important points with you. This is the only way to ensure that the tariff suits you. And avoid being made to fit the tariff.
We are happy to help you with this really important topic. This leads directly to our experts in the field of disability insurance for the self-employed.
Frequently asked questions
How much does disability insurance for the self-employed cost?
There is just as little general answer to this question as to an employee. As always, it depends. Under certain circumstances, you can secure a BU amount of € 2500 from a payment of € 125. But that depends extremely on what your job looks like. What is the proportion of physical work? How much do you travel How big is your company These are all factors that move the contribution in one direction or the other. A BU can also be affordable as a managing director. But it depends on who you ask. The myth that occupational disability insurance is utopian expensive for managing directors still lingers. But that’s not necessarily true.
Can I deduct the contributions to the occupational disability insurance for the self-employed against tax?
In theory, you can deduct contributions from tax. About the pension expenses. In practice, you have probably already used up the limit of 2800 € per year for other purposes. Many will take advantage of this € 2800 through health insurance contributions alone. In theory, they are deductible, but unfortunately often not in practice.
What is the maximum amount I can insure?
From a purely legal point of view, there are no limits here. In the property insurance sector, there is a so-called prohibition of enrichment. So you must not benefit from damage. This is different in the area of occupational disability insurance. Insurers are trying to enforce this prohibition of enrichment. However, this is not a legal requirement. In the case of a broken television, the damage is easy to quantify. But how do you want to quantify the actual value of your labor exactly? Impossible. It’s the same as with accident insurance. How do you know beforehand how much damage will be after an accident? Here you can also hedge any amount of money. So if an insurer promises you a utopian high pension payment, that’s okay. In practice, however, this is unusual. Insurers try to ensure that your coverage does not exceed your current income. They don’t want it to be worthwhile for you to become incapacitated either. The higher the BU pension that you want to secure, the more complicated it becomes. It is therefore advisable to get an expert at your side.
Which company should I choose for the disability insurance?
In order to answer this question, an individual consultation is essential. If anyone here has a general answer, pick up your legs and run. For some, one tariff is the most suitable. However, this does not automatically apply to everyone. There are several companies with good reorganization clauses. And there are also differences between the individual tariffs. You decide what is important to you. This shows which tariff is the best.
Self-employed BU – what is it?
Attention risk of confusion! It has nothing to do with whether you are self-employed or an employee. This is about the following. You have the option of taking out additional occupational disability insurance. That this does not necessarily make sense is secondary here. In any case, you are combining disability insurance with an old-age provision contract. The BU therefore contains a savings component. A part with which you cover the risk of occupational disability and a savings part. However, if you do not couple any additional players to your contract, then it is called an independent occupational disability insurance. With this you only cover the risk of occupational disability. You won’t get anything back from your contribution. That always sounds cool, but it’s often just a sales strategy. You do not take out any car insurance and you still have a pension savings portion that you will get back at some point. Separate insurance for separate risks is often the smarter way.
What happens to the company if I am unable to work?
Just imagine the following. Unexpectedly, you will no longer appear at the company tomorrow. Feel yourself in there. Do you already have a concrete plan for how to proceed? If not, it would make sense to think about it. Do you already have someone to replace you? What effects does this have on your employees? What impact does it have on their families? These are all questions that you should answer yourself. If you don’t have a solution ready in an emergency, then you have little more than hope for the best. Your employees will thank you for a plan.
Why is the reorganization clause in the disability insurance for the self-employed so important?
When applying for a BU pension, many insurers check whether you could simply reorganize your business. He can decide whether the reorganization is reasonable for you. If there aren’t clear definitions here, it’s almost like the lottery. Many insurers keep all doors open here so as not to pay. You don’t want these tariffs as a self-employed person. If it is clearly defined when this reorganization is reasonable, then that is in your interest. This is the only way to guarantee that a certain arbitrariness on the part of the insurer can be avoided.
Does occupational disability insurance make sense for the self-employed?
Does your company continue to run without you? Do you get enough money even without working? If that’s the case, then not necessarily. If the answer to these questions is no, then yes. The disability insurance is intended to protect your expenses / income. If these cease to exist for a longer period due to illness, they should intervene. As a safeguard for your standard of living. If you don’t want to become a social welfare claim, this protection is very useful.