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  • Writer's pictureDarren Tarrant - Cert CII, EIP

What Is Income Protection Insurance in Germany?

Updated: Dec 2, 2023

As an expat living in Germany, you’ve likely taken steps to ensure that you have the resources and support you need to make your transition to a new country as smooth as possible. But one area that’s often overlooked when preparing for life as an expat is income protection.

There are many reasons why expats in Germany need a steady source of income — and security in case that source suddenly dries up. For starters, the cost of living in Germany can be quite high. Without a predictable stream of money coming in, it can be difficult to maintain a comfortable lifestyle, or even to afford basic housing and other living expenses.

Additionally, the entitlement system in Germany may be different from that of your home country. And as an expat, you might not get the support you expect in the event of an illness or disability — putting you and your family at risk. Given this, it’s better to plan for these eventualities and know that you’re protected before calamity strikes.

In this guide, we’ll review the basics of income protection in Germany — from what it is to what it covers to who is eligible.

Contents covered in this article:

What is income protection in Germany?

Income protection is financial support for individuals who can’t work due to illness or disability. This type of protection is particularly important for expats, who may be especially prone to financial insecurity as workers living in a foreign country.

In Germany, “income protection” isn’t one specific thing. It may refer to any one of a basket of social security programs and insurance policies that provide a safety net for those who are unable to work and earn their regular income.

Different parts of this safety net may be more effective than others, depending on your situation. Some of them are provided by the state, while others are paid for individually as a supplement to the state benefits. Of course, the term “income protection” may also encompass money that’s saved and managed independently, as is the case with an emergency or “rainy-day” fund.

As an expat, understanding the relevant aspects of income protection can help you breathe easy in case calamity strikes.

So, what are the options available to expats in Germany when it comes to income protection? Let’s review the major pillars.

Types of income protection insurance available in Germany

Statutory income protection

Salaried workers in Germany — including expats — must contribute to the mandatory statutory unemployment insurance (Arbeitslosenversicherung). Required social security contributions include contributions to this insurance system, as well as to the pension and health insurance systems.

Arbeitslosenversicherung offers financial support to individuals who become unemployed involuntarily. Both employees and employers contribute to this insurance system. If you’re deemed eligible after losing your job, you’ll receive unemployment benefits (Arbeitslosengeld). How long you receive this money and how much you receive depends on several factors, such as your previous earnings and the length of your previous employment, but it usually doesn’t exceed 12 months (or 24 months for the elderly).

Disability insurance (Erwerbsminderungsrente) is another important type of state-provided income protection. This provides income to people who are rendered permanently or temporarily unable to work due to a disability. If you contribute to the Deutsche Rentenversicherung (German pension insurance), you may be eligible for disability benefits until you’re able to return to work.

But it isn’t always easy to qualify. You must have paid into the pension system for five full years to be eligible, and the maximum support you will receive is between 15–30% of your last earned income, depending on the severity of your condition.

Private income protection insurance

In addition to the mandatory social security programs, expats may choose to supplement their income protection with private insurance policies.

Occupational disability insurance (Berufsunfähigkeitsversicherung) can provide coverage in case of disability due to injury or physical and mental illness, offering additional (and quite often much-needed) financial security beyond what public disability insurance provides.

Many expats opt to purchase a private policy, which can function as an additional layer of protection on top of the state-provided benefits. This type of policy is entirely distinct from state-provided disability insurance and can be tailored to meet your specific needs and budget.

Remember: Until you have paid five full years into the German pension insurance, you can’t count on receiving any support from the state. That’s why it’s so important to bridge the gap with private insurance, particularly if you have others who depend on your income.

Employer-provided income protection

Another option is to investigate any income protection coverage offered through your employer. Many companies offer group disability or accident insurance policies to their employees as part of their overall benefits package.

If this is the case at your company, take the time to understand the terms and conditions of the policy, as well as any limitations or exclusions that may apply.

Provided you qualify for employer-provided income protection, the shortfall to get private insurance coverage may be significantly lower. Bear in mind, however, that when you leave your employer, any benefits you were entitled to will likely be lost.

What does income protection insurance cover?

As noted above, income protection is generally intended to cover lost income for employees who can no longer work or who lose their job involuntarily.

This means that income protection should cover your living expenses while you look for another job or recover from what’s ailing you. This generally includes health insurance costs, as well as other costs of living.

Are expats eligible for income protection in Germany?

Yes, expats in Germany are typically eligible for income protection, either through state-provided social security programs or private insurance options.

With that said, individual eligibility may differ depending on the specific type of income insurance. In general, eligibility factors in considerations such as your employment status, the type of residence permit you hold, and your previous contributions to the social security system.

As an expat, it’s wise to be aware of the specific social security contributions required based on your employment status, and to explore additional private insurance options to bridge any gaps in state-provided income insurance.

These issues are complex, so consulting with a financial adviser is paramount. Our qualified advisers at LeX-Wealth can help you understand how the state system works, what gaps you have in your coverage, and how to secure your income for yourself and your loved ones.

Find the best cover with LeX-Wealth

It’s always a good idea to review your personal financial situation and make sure that you are planning for all types of eventuality. This includes having an emergency fund, understanding your state benefits and, most importantly, bridging any gaps in the coverage you require.

At LeX-Wealth, we’re well-versed in the nitty-gritty details of all things income protection, and can help you secure your finances so that you and your loved ones are protected. Contact us today to learn more.

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