What is occupational disability?
According to Statista (2021), more than 14 million people in Germany have occupational disability insurance (BU) and one in four of these people will statistically become unable to work in the course of their professional life.
Occupational disability is when you cannot perform at least 50% of your previous professional activities for at least 6 months due to an illness, accident, or disability. This must be determined and certified by a doctor.
Mental illness is a cause for almost one-third of all occupational disability cases, meaning it’s the number one cause of occupational disability followed by skeletal and musculoskeletal system diseases and cancer. Accidents, cardiovascular diseases, and other illnesses can also lead to occupational disability Statista, 2021.
Occupational disability insurance
Occupational disability insurance (Berufsunfähigkeitsversicherung) can protect you if you find yourself unfit for work by providing you with monthly disability payments. In order to claim the complete payment, you must not be able to perform at least 50% of your previous professional activities. Since 2001, statutory retirement insurance has only paid a small reduction in earning capacity pension in the event of occupational disability. The former statutory occupational disability program was abolished, which is why private occupational disability insurance is so important to close the gap between your needs and your statutory benefits. This insurance ends, at the absolute latest, when your statutory retirement benefits begin – provided that you cannot return to work before that.
Occupational disability insurance includes the following:
- General occupational disability
- Income protection
- Livelihood protection
- Disability protection
- Risk provisions
- Family insurance
The costs of occupational disability insurance
The premium costs for occupational disability insurance vary based on your age and when you take out the insurance. You can use Getsurance to calculate your estimated premium in just two minutes.
Your profession also plays a role in determining your premium costs. High-risk professions such as roofers or scaffolders are subject to higher premiums – but pre-existing conditions and your desired insurance benefits also influence the premium costs for your private insurance.
Declaring your occupational disability insurance contributions on your tax return
Occupational disability insurance can be claimed both as:
- Supplementary insurance (BUZ, Berufsunfähigkeitszusatzversicherung) to a life insurance or retirement insurance or Separately as a stand-alone or independent occupational disability insurance (SBU, selbstständige Berufsunfähigkeitsversicherung)
- Expenses from occupational disability insurance are tax-deductible as special expenses (Sonderausgaben) on the Provident Expenses Form (Anlage Vorsargeaufwand) of your tax return. Special expenses are deducted from your income and reduce your taxable income and thus, your tax burden. Therefore, you should absolutely claim your insurance premiums in your tax return. Both traditional employees and self-employed persons can equally benefit from it.
Independent occupational disability insurance
Contributions made to independent occupational disability insurance (selbstständige Berufsunfähigkeitsversicherung) can be claimed as “other provident expenses” (sonstige Vorsorgeaufwendungen). Traditional employees can claim up to an annual maximum of 1,900 euros per year in other provident expenses, but this also includes contributions to health insurance, nursing care insurance, unemployment insurance, and other insurances such as accident and liability insurance. If you exhaust the maximum amount by deducting any of the other listed insurances, contributions to independent occupational disability insurance can no longer be deducted.
Self-employed persons can deduct an annual maximum amount of 2,800 euros in other provident expenses.
Supplementary occupational disability insurance
Occupational disability insurance can be taken out as a supplement to a “main insurance” such as private pension insurance policies or life insurance policies. It’s also possible, for example, to combine term life insurance (Rikisolebensversicherung) and occupational disability insurance.
Private pension insurance can be the state-subsidized basic retirement insurance also known as Rürup pension. If you take out supplementary occupational disability insurance on your Rürup pension, the entire premiums can be deducted as special expenses (Sonderausgaben) for up to a maximum annual amount of 20,000 euros (for singles) or 40,000 euros (married couples) per year.
Occupational disability insurance for members of a professional pension fund
Members of professional pension funds (such as compulsorily insured persons in liberal professions such as doctors, pharmacists, architects, lawyers, tax consultants) automatically receive occupational disability funds if they find themselves unable to perform their profession. Contributions to their occupational disability insurance plans can also be deducted as special expenses, and as of 2025, they will be fully deductible. In 2022, you can claim 94% of the maximum amount of 25,639 euros for singles and 51,278 euros for married persons per year (2021: 92%).
Occupational disability insurance as a company pension plan
Occupational disability insurance can also be taken out as direct insurance (Direktversicherung) as a part of a company pension plan, the contract is then concluded between your employer and the insurance company. In this case, part of your gross salary is converted into contributions to your occupational disability insurance (deferred compensation). This saves you both income tax and social security contributions during the payment phase.
How is tax paid on occupational disability insurance?
Generally, if your total income (including insurance payouts, rental income, investment income, etc.) doesn’t exceed the basic tax-free allowance (Grundfreibetrag), then no taxes are due. In 2022, the basic tax-free allowance amounts to 10,347 euros (2021: 9,744 euros). If your income exceeds this allowance, tax due on your occupational disability insurance depends on the type:
- If you have independent occupational disability insurance, you only pay tax on the so-called profit share (Ertragsanteil). This is based on the period between the start of payment and the end of the contract, regardless of whether you don’t actually receive a payout until the end of the contract. The Income Tax Act (Einkommensteuergesetz) contains a table which defines the profit share for your pension term. For example, if you receive occupational disability insurance for 10 years, the profit share is 12%. You then are required to pay tax on 12% of your occupational disability payments are your personal tax rate.
- If your occupational disability insurance is part of a company pension plan, it is treated as gross income subject to income tax. The tax paid on it is subject to your full personal tax rate.
- If your occupational disability insurance is part of a Rürup contract, the taxable portion increases in 1% increments from 2020 onwards. From 2040, 100% of the occupational disability pension will be taxed. If your occupational disability insurance begins in 2022, you’ll have to pay tax on 82% of the pension. The calendar year in which payment begins is the decisive factor for the taxable amount, and the taxable portion remains the same over the course of the entire term of the pension.
Differences in occupational disabilities: German terminology
Berufsunfähigkeit describes employees who are able to perform less than 50% of their previous professional activities for at least 6 months due to a physical or mental illness or as a result of an accident. These employees are defined as berufsunfähig.
Erwerbsunfähigkeit describes employees who can only work up to 3 hours per day or not at all for a period of 6 months due to an illness or accident. These employees are defined as erwerbsunfähig.
Arbeitsunfähigkeit describes employees who are temporarily unable to perform their occupation due to illness. If the duration is less than 6 weeks, their income is still paid during their absence by their employer, following 6 weeks their health insurance pays sickness benefits (Krankengeld). These employees are deemed arbeitsunfähig.