What makes insurance companies economically viable

Cancel life insurance? These alternatives are often better!

Make insurance contracts cheaper

The key words for this are: switch to annual payment, reduce dynamism, cancel unnecessary additional insurance.

Changeover to annual payment

In the case of a change from, for example, monthly to annual payment, the surcharges for payment in installments do not apply; the contribution decreases with the same performance. Such a change does not have a negative tax effect.

Reduce dynamization

An agreed dynamization means that the contribution increases annually by a certain percentage. At the same time, the death or expiry benefit increases - but not proportionally to the contribution increase. In order to keep the dynamic in a contract, the dynamic increase must usually be accepted at least every third year. Please note that the current age is used as the basis for the risk calculation and thus for any risk contribution that may arise. In addition, acquisition costs are due for each dynamic increase.

It can be worthwhile - especially in the case of old contracts with good interest rates - to keep a dynamic approach. Depending on your own situation, the annual increase in dynamics can also be suspended or finally stopped entirely. Such a change has no negative tax consequences.

Cancel unnecessary additional insurance

It is advisable to cancel supplementary insurance that is not very sensible and usually expensive, such as the inclusion in accidental death. If additional accident-related insurance has been agreed, an increased death benefit is paid out in the event of accidental death. Such protection makes the contract more expensive.

If it is only about your own retirement provision and no other person needs to be provided for, an agreed survivor protection must also be put to the test. Reducing the premium by capping additional insurance has no tax impact.

Deferral of insurance premiums

The payment of the contributions is suspended for a certain period of time - often up to a maximum of two years. The insurance cover is retained. The deferral is usually subject to interest. The suspended contributions and the interest for the deferral must be paid retrospectively after the deferral period has expired. In certain cases (such as unemployment or parental leave), the insurer sometimes also offers interest-free deferral.

The option to defer payments can already be included in the general insurance conditions. You should request an offer for deferral directly from the insurer.

Danger: You should only use this variant if you know for sure that you can actually pay the contributions again later and also repay the deferred amounts with interest and compound interest.

Temporary suspension of insurance

Temporary payment difficulties can also be bridged by putting the contract on hold.

However, this option is not always offered. For the period in which the insurance is suspended, there are no contractual obligations for either party. The policyholder does not need to continue to pay the contributions for the agreed period and the insurance cover is interrupted. The contract itself remains in place. After the agreement has expired, the insurance cover is revived.

But beware: Any additional insurance is also suspended for the corresponding period!

Disadvantage: Since the suspended contributions are not paid later, the maturity benefit decreases.

In order to permanently reduce premiums, you can consider converting your current contract into one with reduced premiums. This possibility can already be contractually agreed in the conditions.

If this is not regulated in the contract, the insurer can agree to your request or reject it.

Danger: If the premium is reduced, the benefits in the event of death and the expiry benefit also decrease.

If you do not want to lose your insurance cover but cannot pay the contributions for the contract, you can have the contract exempt from premiums. The exemption from premiums, i.e. the conversion into a premium-free insurance, is legally anchored in Section 165 of the Insurance Contract Act (VVG) and is possible at any time for the end of the current insurance period if an agreed minimum insurance benefit exists. According to Section 12 VVG, the insurance period is one year if no shorter period has been agreed.

As a rule, the insurance period is one year. However, monthly terminations are possible on a regular basis. Please refer to your insurance conditions.

From a legal point of view, the exemption from contributions is a partial termination, which both lowers the insurance cover and reduces the expiry benefit. However, the entitlements from the profit participation remain.

Danger: Restoring the original insurance cover, i.e. continuing the payment of premiums, is only possible with the consent of the insurer after the conversion to non-contributory insurance. Legally, it is then a new conclusion and a new health examination may have to be carried out.

If a minimum surrender value is not reached, an application for exemption from contributions can be considered a termination and result in an immediate termination of the contract. There is a ruling on this by the Frankfurt Higher Regional Court (Az .: 3 U 131/13, March 5, 2015), see also Section 165 (1) sentence 2 of the Insurance Contract Act (VVG).

Attention: If supplementary insurance is linked to the contract, for example supplementary occupational disability insurance, this generally does not apply if the main contract is converted to a premium-free insurance. Therefore, in this case, an exemption from contributions should be carefully considered.

Limitation periods

Anyone who cancels their life or pension insurance should consider what amount is paid out or how high the premium-free insurance amount is. As a rule, you can only take legal action against the insurance's calculations for three years - starting on January 1st of the year following the termination / exemption from contributions.

If, for example, you terminated the contract in 2017 or made it exempt from contributions, you have to take action by the end of 2020 in order to suspend the statute of limitations.

You should clarify in good time with independent support which steps are sensible and whether you can use them to inhibit the statute of limitations. The consumer advice centers, for example, can help.

Policy Loans (Insurance Loans)

Those who are only temporarily financially weak can also borrow money from their policy.

In this case, the policyholder receives a partial amount (usually up to 90 or even 100 of the surrender value, in the case of fund policies up to 60 percent) as a loan, which he can repay during the remaining term of the policy or only when it becomes due. Policies can be borrowed from the insurance company itself or from a bank.

Providers on the German secondary policy market also offer solutions - however, a minimum surrender value that has already been saved is required. As a rule, life insurances can then already be borrowed from many providers with a minimum loan amount of 2500 euros (some even with a loan amount of 1000 euros or more).

The advantage over a normal installment loan can be that the policy loan has lower interest rates. However, this differs from insurer to insurer. The policy itself also serves as security, which is why often no SCHUFA information is required and no SCHUFA entry is made.

You should compare the offer of your insurance company with the offers of the German secondary market dealers in order to determine the cheapest interest rate for the loan on your policy.

Danger: The policy loan may have a negative tax impact on a previously tax-free life or pension insurance (insurance concluded by December 31, 2004 and a term of at least 12 years) and trigger tax liability for the insurance contract! This should not be the case with a loan for purely private purposes; however, you should discuss the tax consequences for the contract with your tax advisor.
Sale on the secondary market

Under certain conditions, the chances are good to find a buyer for your own insurance contract.

If the surrender value of the policy is at least 10,000 euros and the remaining contract term does not exceed a certain number of years (15 to 25 years), there is a good chance of finding a buyer for the life insurance contract. However, unit-linked life insurance is usually not bought out. In addition, government-sponsored contracts, i.e. Riester or Rürup pension insurance, and no life insurance as part of company pension schemes (direct insurance) are not purchased.

Professional policy buyers offer purchase prices that range from 1 to a maximum of 15 percent above the surrender value of the insurer.

The buyers acquire the policy with the aim of continuing it in place of the original policyholder until the final maturity date and having the expiry benefit paid out on the key date. For you, this has the additional advantage that a residual insurance cover is guaranteed. In this way, death protection is retained for you, as the policy buyer continues the contract. If the insured person dies before the end of the contract, the policy buyer pays the death benefit to the person of your choice, however, reduced by the purchase price, the premiums paid up to the date of death and an appropriate interest rate.

Danger: Supplementary insurance such as occupational disability insurance is usually terminated by the policy buyer - you would lose this protection. There are sometimes purchase models in which such additional insurance can be retained. Pay close attention if this is important to you.

Exercise great caution when choosing the policy buyer. There are many companies on the market that take advantage of the ignorance of consumers and do more harm than good.

The sales process takes place in several steps. First of all, the policy buyer needs your contact details, details of the contract (name of the insurer, insurance policy number, contract duration, surrender value) and a copy of the insurance policy. You will receive an offer. Upon acceptance, you must send the signed sales contract and the original contract to the policy buyer. The policy buyer notifies the insurer of the assignment of your contract and pays you the purchase price.

You should make sure that the price offers for the purchase are created free of charge and without obligation, and that the purchase itself is free of charge. In the case of endowment and annuity insurance, the purchase price should be above the surrender value and be paid out immediately and in one amount.

Some companies pay less than the surrender value or even only partial amounts and combine this with the promise of future payments, the fulfillment of which, however, is uncertain. You should also make sure that the buyer does not partially or completely withhold the final withholding tax from the agreed purchase price, because the customer is entitled to the full amount. This passage is often hidden in the general terms and conditions.

If the buying company belongs to the Federal Association of Asset Investments in the Secondary Market for Life Insurance (BVZL), certain quality guidelines apply. The companies in the association have committed to complying with certain purchase requirements.

The purchase price should be paid out in one sum, the sale should be handled by a trustee and German law should apply to the purchase contract.

The policy buyer is obliged to inform your local tax office about the sale. If contracts are sold after December 31, 2004, a withholding tax of 25% is due on the full profit, as well as a solidarity surcharge and possibly church tax. In contrast, if a contract is sold before January 1, 2005, no taxes are usually due.

Termination of insurance contracts

You can terminate the contract without giving a reason. Unless a specific form has been agreed, an informal letter to the insurer is sufficient. However, it is advisable to send the notice of termination by registered mail.

Cancellation is possible at any time at the end of the insurance period. Insured persons who pay their premium annually are subject to this main maturity period. However, if a monthly payment method has been agreed with the insurer, monthly notice periods also apply.

On this date, the insurance cover expires in the event of cancellation and the policyholder receives the surrender value. The amount of the current surrender value can be found in the last of the stand notifications sent annually. In addition to the surrender value, the company must pay out the claims already acquired by the insured person from a profit participation plus a pro rata final profit participation component.

Be careful with the surrender value!

You usually lose a lot of money if you quit. The insurers only pay the surrender value. And that is not the sum of the contributions paid. In the event of termination, insurers can deduct:

  • Acquisition and distribution costs
  • a cancellation discount

Also consider tax considerations! Old contracts that were concluded before January 1, 2005 are tax-free under certain conditions and termination is therefore rather unattractive from this point of view.

The guaranteed interest also plays a decisive role in whether an old contract is more attractive to you than a termination. The older the contracts, the higher this interest rate. Up until June 2000, a 4 percent guaranteed interest rate was the norm for newly concluded contracts. Since the general level of interest rates has fallen significantly since then, such interest rates are no longer available from life insurances.

The calculation of the surrender value for contracts up to the end of 2007

A very consumer-friendly case law of the Federal Court of Justice (BGH) applies to capital-forming and unit-linked life and pension insurance policies that have been taken out since mid-1994 and the end of 2007.

The BGH had criticized the fact that the surrender value clauses violated the transparency requirement and put policyholders at an unreasonable disadvantage. The BGH has ruled in several rulings that disbursements in the event of termination and exemptions from contributions may not fall below a "minimum amount". Also, when calculating the minimum value, no acquisition and distribution costs may be taken into account.

As a result of these judgments, the policyholder is entitled to roughly half of the premiums paid.

We will go into more detail in a separate article on the surrender value for contracts concluded before 2008.

The calculation of the surrender value for contracts from 2008 onwards

A different calculation applies to new contracts concluded on or after January 1, 2008. The new Insurance Contract Act stipulates that all costs, including the risk premiums paid for the insurance cover received, can be deducted. The insurers can also charge a cancellation discount if it is agreed, quantified and appropriate.

This calculation leads to somewhat higher payments than on the basis of the BGH rulings for life insurance contracts up to the end of 2007.

Limitation periods

Anyone who cancels their life or pension insurance should consider what amount is paid out or how high the premium-free insurance amount is. As a rule, you can only take legal action against the insurance's calculations for three years - starting on January 1st of the year following the termination / exemption from contributions.

If, for example, you terminated the contract in 2017 or made it exempt from contributions, you have to take action by the end of 2020 in order to suspend the statute of limitations.

You should clarify in good time with independent support which steps are sensible and whether you can use them to inhibit the statute of limitations. The consumer advice centers, for example, can help.

Tax situation

If you terminate a tax-free old contract (i.e. contract concluded before January 1, 2005) with a minimum term of twelve years, the payment of the surrender value remains tax-free. Otherwise, the withholding tax is charged in full.

In the case of new contracts that already run for 12 years or more and where the insured person is 60 years old (62 years for contracts concluded from 2012), only half of the profit is taxable at the personal tax rate.

Revoke / contradict / declare withdrawal from the insurance contract

You can revoke a life insurance contract that has just been concluded within a period of 30 days.

The period begins one day after receipt of the insurance policy and the other contract documents.

In some cases, however, this option still exists much longer. The background: As long as the insurer has not fully fulfilled its information obligations, the 30-day period does not start to run. With this, a contract can possibly also Years after graduation be revoked.

Special features also apply to life insurance contracts that were concluded between 1994 and 2007 according to the so-called policy model. The customer filled out an application form. The insurer accepted the application by handing over the insurance policy, the insurance conditions and the other contract documents to the customer. If a company had not correctly informed its customers about the right of objection, this should expire one year after the first premium payment. The European Court of Justice declared this regulation to be incompatible with EU law at the time. The policyholder has an unlimited right of objection or revocation (judgments of the European Court of Justice (Az. C-209/12) and the Federal Court of Justice (Az. IV ZR 73/13 and IV ZR 76/11).

If the contract was concluded according to the so-called "application model", the result is the same as for the policy model. Instead of a right of objection, the right of withdrawal can still be exercised today in the event of insufficient instruction / information, see for example Federal Court of Justice, Az. IV ZR 260/11 and IV ZR 173/15.

Danger: Before you declare your withdrawal or objection, you should also take economic considerations into account. The reversal also ends additional insurance, such as occupational disability insurance. Old contracts have a relatively high guaranteed interest rate and are tax-free under certain conditions. What are the reinvestment options in the low interest rate environment? The returns on the reinvestment must be checked against the residual returns on your contract. The risk of litigation cannot be disregarded in the event of a reversal. Finally, insurers can deduct the costs for the insurance benefits used from the payout amount in the event of cancellation.

So in case of doubt, let us advise you independently which options you have and which are more attractive to you. This works, for example, with consumer advice centers.

You can read more about this in our separate article on the perpetual contradiction in life and pension insurance.

To the unlimited right of objection at Life insurance policies taken out before 2008 we will go into more detail in a separate article.