Occupational Disability insurance. Important??? (Hamburg)
as the title says, this time I want to share some info with you all about occupational disability insurance.
Many, many people don't actually have this potential risk on their radar. "I don't really need it" or "its not worth it" is what I get a lot of the time. BUT, as soon as I explain why it is so important, people really start to see the reasoning behind this insurance.
Here's what I say to all of my clients:-
Your ability to generate income through your work/job is your most valuable asset and indeed requires decent and solid protection. Here's an example:- Just take an average income (let's use € Protected content . as an example, and say that the person is 30 years old) and multiply that by the number of years you plan to work until retirement. There you have the total value of the asset you need to cover in whatever way, shape or form. (€ Protected content . until 67 years old...so that's € Protected content 37 years......total amount (and not taking any increases into account), that is going to be roughly €1,295,000.00)
If you own a house/flat or any other property with a value of €1,295,000.00, you are, of course going to spend a good amount of money for an insurance to protect it against, let's say, fire, theft or anything else along those lines.
It then becomes clear that each and every one of us needs to insure the ability to generate income for the future. It's exactly the same as insurance for a car (we all HAVE to insure those) or jewelry, or a house.....it's covering risk, which means we pay certain amounts of money to cover for those potential risks, and if nothing happens, after Protected content for example, the money you have spent hasn't been lost, no. It has been prudently spent to cover/insure what's worth protecting.
There are three ways (in Germany) to protect your ability to earn money.
There is the short term coverage, the so called “Krankentagegeld (KT)” – which is a daily allowance in case you are continuously sick for longer than 43 days (Under German law, your employer has to pay full salary for the first43 days). After that time your income payments/salary payments fall dramatically to very low legal limits. The KT is usually set up as part of your health insurance. However, what most people in Germany do not know about KT is this: according to either section 14 or 15 in each of the standard small prints of these insurance contracts you’ll find a passage, which roughly translated says this: if the insurance company (!) determines, that you are not only ill but occupational disabled, the insurance is not required to pay anything! Many people in Germany who have Krankentagegeld/KT actually think they have set up a long-term protection of their income, but that is not the case. As you can see, if you are faced with an extremely bad health situation because of an accident or illness, you could end up with nothing if you only rely on KT. Therefore this should be considered in most cases only a “nice to have” add-on but asn an "income protection", it's low on the priority list.
Now we come to the second kind of coverage, and that is the so called “Berufsunfähigkeitsversicherung” or BU. This insurance pays you a set monthly pension for as long as you are >50% disabled to carry out your occupation.
N.B... The insurance usually require a doctor to state that i) you are >50% disabled and that this status will last at least for ii) 6 months or more until they start to pay out.
The advantages for this kind of insurance are evident: if you are unfortunate enough to have a serious accident or to be so ill that you will be unable to get back to your line of work for many years to come (or forever), it would be comforting to know would it not, that you have a monthly BU pension paid out to you that helps you protect your lifestyle without having to sell valuable assets such as house and other properties, for instance.
The cons are the following: first of all, you have to be ill enough for a doctor state, with certainty, that for more than consecutive 6 months you will not be able to get back to work. This, for instance, leaves out other very serious cases like a heart attack – which in many cases requires several weeks of hospital, followed by weeks of rehab, and then off you go back to work. This is usually coupled with the obvious recommendation from the doctors to change your lifestyle (maybe also reducing your working hours etc.) if you want to prevent another potential terminal heart attack. As you can see from the definition above, you wouldn't receive a BU-pension during the period of time you are in hospital or Rehab (The KT would pay out during this time..... if you have one) and if in the future you have no alternative but to reduce your workload order to reduce the dangers to your health… well, that is up to you, but the insurance doesn't have to pay for that, either. Thus, why a BU protects well the most severest risks for your ability to generate income, they leave one important point open and also therefore unprotected
The third kind of insurance coverage is the “Schwere Krankheitenversicherung (SKV)” or normally called a “Dread disease (DD)” insurance. A DD-insurance works as follows: there are a clearly defined number of severe ailments and diseases covered by this insurance which means that if you contract any of these, a major lump sum will be paid out to you regardless if and how long you will be unable to get back to work. So, if you have been diagnosed with some form of malign cancer for example, or as another example a heart attack – which requires time off work and maybe a radical change in your work/life balance, which is not covered by BU – you will receive the lump sum from the insurance company. If after 3 months (after the heart attack) you are back at work and back up to full power as you were before the heart attack, a change of diet and lifestyle is recommended, but you still keep the money paid out to you. If however, after these three months back at work you have to change your work/employment contract in such a way that your salary does indeed decrease because you cannot perform 100% anymore, if you listen to the doctors that is (but you would not be considered to be occupational disabled) then you can use the insurance payment to balance out the loss of income for good period of time. This is why the DD is such an important insurance coverage because it closes an important gap in the normal risk coverage.
There are also, in some cases, taxable benefits and gains that can be made if you purchased a BU insurance, as these can be linked together with a pension plan, which makes the whole monthly premium tax efficient. I am not going to get into that now though....that's for another time.
If any of you would like some more info or help with investigating these insurances, then just let me know and I will help wherever I can