Design pitfalls in the case of subscription rights in direct insurance

Liability of insurance companies, agents and insurance brokers for faulty design


Insurance brokers have always had a particularly heavy responsibility towards their customers. In the German Insurance Contract Act (VVG), the legislator has expressly defined the liability of the insurance intermediary in §§ 59 ff. VVG.


Obligation to pay contributions to statutory health insurance (GKV) avoidable

In the normal case of a direct insurance company’s lump-sum payment, 1/120th for 10 years from the month following the payment is subject to compulsory contributions to the SHI system. Only domestic insurers are subject to a reporting obligation to the SHI system. SHI and nursing care contributions must also be paid even if there is no lump-sum payment to the pensioner, but the lump sum is only due as a death benefit for the survivors. This does not change even if the deceased pensioner was himself insured in the private health insurance (PKV) (Federal Social Court, BSG ruling of 25.04.2012, Ref. B 12 KR 19/10 R).


Without SHI membership and survivor’s benefits no obligation to pay contributions

If, however, the pensioner dies during the 10-year period after the start of the pension, the obligation to pay SHI contributions ends without any transfer to the heirs, regardless of whether it is a lump-sum payment or a pension. If the survivors are insured in the private health insurance or if there is no obligation to take out statutory health insurance due to a stay abroad, no contributions are payable. In many cases, the surviving dependents also include companions who are also beneficiaries. However, survivors’ benefits are often not subject to inheritance tax (Hamburg Tax Court, ruling of 31.10.2012, ref. 3 K 24/12 n.rkr).


Structuring of the estate and subscription right decides on compulsory health insurance

If no subscription right is granted to provide for surviving dependents in old age, disability or death, the death benefit is included in the estate. Depending on the content of the agreement with the insurer, the obligation to pay SHI contributions can then be avoided. The agreement with the employer alone will not be decisive. Alternatively, in the case of older direct insurance policies, the insurance benefit can be bequeathed to a legal entity, such as a non-profit organisation or a foundation (possibly its own), even if the latter is to be set up only after death. A non-self-sustaining legacy to natural persons could also be envisaged.


Revocable and irrevocable subscription right in combination

In many cases, employees often overlook the fact that they have an irrevocable subscription right granted to them by the employer in the direct insurance policy from the time of vesting at the latest. If the employer becomes insolvent, the employee then often has to do without his direct insurance for occupational pension provision, and in return receives up to less than 50% of the expected benefits from the Pensionssicherungsverein, if the contract – alternatively also with the employee’s consent – was lent on. This is because the future surpluses are then first used to top up the guaranteed benefit.

If, however, an irrevocable subscription right is also provided for the survivors instead of a revocable subscription right or, for example, no subscription right at all, the option to eliminate the personal beneficiary by revocation or non-acceptance is eliminated, with the result that the assets can no longer fall to the estate by design.


Liability of insurance agents and brokers

Insurance intermediaries often take on the task of looking after their customers and advising employees on company pension schemes. Despite legal obligation since 22.05.2007, occasionally no documentation is created or handed over until today. This leads to a reversal of the burden of proof on the part of the intermediary.

Up to more than 5 percent of the persons directly insured die before the start of the pension. This means that at least one in 20 direct insurance policies mediated is affected. With an average commission of EUR 2,000 each (totalling EUR 40,000), a potential liability case results in an 18% SHI/care contribution rate from a direct insurance policy with, for example, EUR 125,000 maturity benefit, which corresponds to a liability or damage potential of around EUR 22,500.


Mass malpractice in insurance brokerage

Insurance intermediaries are obliged to make normal legal arrangements within the framework of the insurance law options. This is no different with direct insurance than if the beneficiary, in the event of death of a normal risk or life insurance policy, is better not to become a policyholder at the same time in order to save inheritance tax.


Flagging out to avoid compulsory health insurance?

Temporary emigration can also help beneficiaries, policyholders or survivors to save on social insurance due to the lack of compulsory health insurance. Mallorca should be avoided despite price decline in the real estate as a place of residence, because there the entire expiry benefit would then be taxable – even a death benefit. If you choose to reside in Canada, you would have to pay tax in Germany on the difference between the value of the insurance and the value of the insurance before immigration. Tax law is not coordinated even within the EU – insurance brokers will rarely know more than the main German tax regulations on life insurance and should therefore be cautious about statements on tax treatment in cases with a foreign connection.


by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm

by courtesy of (Expert Report 03/2014)

as well as published online on 09.03.2017


(published in Computers in Crafts 12/2011, page 5 under the heading:

Life insurance: design traps in the subscription right)


und (Published on 07/03/2017 under the heading: Direct insurance: Design pitfalls in the subscription right)




and (Published in issue 03/2017, page 34-35 under the heading: Design pitfalls with subscription rights in direct insurance)

and (Issue 04/2017, page 30 under the heading: Design pitfalls with subscription rights in direct insurance)

and (published in issue 03/2017, pages 36-37 under the heading: Design pitfalls with subscription rights in direct insurance)

and (published 09/03/2017 under the headline: Direct Insurance – Liability of Insurers, Agents and Insurance Brokers for Defective Design).



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Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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