A how-to guide to occupational disability insurance

Why now is the best time to take precautions and protect your income.

4 minute read2022-02-17
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When the going gets tough – you don’t need to worry.

We never want to consider worst-case scenarios. After all, we hope we won't be faced with a situation where we're too unwell to work. But it can often be wise to prepare for the worst, as we don't know what’s round the corner. Occupational disability insurance offers peace of mind against life’s unexpected turns. Let’s take a look at what it is and how it works.

Why do I need occupational disability insurance?

Simple question – and the answer is even simpler: because good health is not guaranteed. According to the Federal Statistical Office, one in four people in Germany will become unable to work in the course of their lives. What does that mean exactly? If you are unable to work or study for at least six months, you are considered occupationally disabled.

In fact, mental illnesses such as burnout and depression are increasingly the cause. Moreover, illnesses that restrict mobility, cancer and heart disease, or accidental injuries are often triggers for prolonged occupational disability.

And that’s exactly when occupational disability insurance steps in and protects you from financial hardship: you receive a secure income in the form of a monthly pension.

What happens if I become unable to work without disability insurance?

Under certain circumstances, you can claim a state benefit: the so-called reduced earning capacity pension. However, this only applies if you can no longer do any job at all. What you have learned or what you have done so far is completely irrelevant. You only get the full benefit if you can no longer work more than three hours a day. And even then, the reduced earning capacity pension amounts to a maximum of 40 percent of your last gross income – which is not enough to cover your living expenses.

Who should take out occupational disability insurance?

Occupational disability insurance is by far the best product there is to protect your income. And that’s why it’s worthwhile for everyone who works to earn a living.

It is rarely an alternative to save money yourself. Imagine not being able to work for several years or until you retire! On average, people who can no longer work for health reasons are only 52 years old. To finance the time until regular retirement from your savings alone, you’d need at least €360,000 – which amounts to €2,000 a month.

The crux of the matter: While you are not working, you are not paying into the pension fund. You don’t want to be poor in old age? Then you have to make private provisions despite your occupational disability.

How does occupational disability insurance work?

If you are no longer likely to be able to do your job in the long term, you can claim money from your insurance. This is because it is linked to your last job – so it doesn't matter whether you could theoretically still work in another job.

The degree of your occupational disability is determined first. From 50 percent, i.e. when you lose at least half of your working capacity, you are entitled to the contractually agreed pension. On the basis of a medical diagnosis, an assessment is made of which activities in your job you can no longer perform.

If you can only work a small number of hours or you can't do important tasks any more, you will be confirmed as unable to work and you will receive the occupational disability pension every month from then on – for as long as you are unable to work.

How much does it cost?

Since occupational disability insurance is very much tailored to your personal situation, the costs vary greatly. Decisive factors include occupation, age, state of health and the desired amount of the occupational disability pension. In comparison to other insurance policies, it is on the pricier side. However, the financial benefit of it is also more significant than many other insurance policies. After all, occupational disability insurance replaces your income if you cannot work.

Premiums are particularly favourable for young people, professionals with office jobs and people without pre-existing conditions. The healthier you are, the lower the risk of becoming unable to work. And the lower the premium. Conclusion: Take care of it sooner rather than later.

How long is it worthwhile?

Occupational disability insurance is worthwhile as long as you have not yet completed 30 years of contributions to the statutory pension insurance. The term of your occupational disability insurance should last until your retirement age.

By the way: The maximum age for taking out occupational disability insurance is 55. However, you should not wait that long. On the contrary! In many cases, it pays to take out an occupational disability insurance policy while you are still at school or studying – then you can save on premiums and be optimally protected during your professional career.

What else is there for me to consider?

Make sure that your occupational disability pension is high enough to cover your running costs – for family, housing, insurance and food. As a rule of thumb, go for 80 percent of your net income.

Do you still have questions? No worries, we’re here for you – just book a personal consultation with one of our experts!

Author: Lisa