Insurance premiums only partially tax-deductible

How detailed advice protects clients from the suspicion of tax evasion: Doctors, notaries, non-medical practitioners, lawyers, engineers, tax advisors, architects, auditors, psychotherapists and other health care professions are particularly affected.


In a ruling dated 20 May 2009, the Federal Fiscal Court (BFH, Ref. VIII R 6/07) confirmed its case law according to which the costs of business interruption insurance in the event of illness or accident are to be allocated to private living. Anyone who deducts corresponding insurance premiums from business taxes exposes himself to the suspicion of tax evasion.

Unfortunately, superficial and inaccurate information provided by brokers and brochures often give policyholders the impression of an existing possibility of tax deductibility of premiums as business expenses. However, this relates exclusively to the pro rata offsetting of operational risks.

These include company-specific risks of illness or accidents, such as in the case of epidemic danger and after fire, storm or burglary. If the insurance benefit is claimed in the event of the closure of a medical practice or business as a result of personal circumstances, the premiums are costs of private living for which a deduction prohibition can be found in § 12 of the German Income Tax Act (EStG).


Insurers risk intentional, immoral damage and suspected fraud

Insurers and brokers who inaccurately and misleadingly point out the deductibility of premiums and the substantive differences between business interruption insurance and a daily sickness allowance insurance policy, and suggest that they are qualified and entitled to give advice on tax matters, could expose themselves to accusations and evidence of immoral damage and suspected fraud.

“Whoever intentionally causes damage to another in a manner contrary to morality is obliged to compensate the other for the damage” (§ 826 BGB).

Furthermore, anyone who “recklessly and unscrupulously” advises another to make high expenditures for transactions with an uncertain outcome and thereby consciously accepts that the transaction will fail and that the other person will thereby suffer considerable economic damage, is acting immorally (cf. BGH, judgement of 26.11.1986 – Az.: IVa ZR 86/85, NJW 1987, 1758).


Brokers can also be liable

In the past, business interruption insurance was often offered as an alternative and full replacement for daily sickness benefit insurance. The most important argument for this was the possibility of co-insurance of operating costs in the event of illness and accident.

However, apart from the recent ruling of the BFH, it is worthwhile to go into detail about the contents and conditions of the contract when giving advice. Thus, business interruption insurance also has significant disadvantages that can make the broker liable if they occur. One example is the insurer’s ordinary right of termination after the occurrence of a loss.

In the case of business interruption insurance, the insurer has the right to terminate the contract after each loss event. This right exists – unless excluded by individual contract – in contrast to the daily sickness allowance insurance for an unlimited period during the term of the contract. The customer may no longer be insurable due to any health problems caused by the breakdown.

Another example that speaks in favour of taking out daily sickness benefits insurance is the list of exclusions, which is usually much longer in business interruption insurance. Brokers are liable if settlement of a claim by the business interruption insurance is refused due to an exclusion which was not clearly explained and which would have been covered by the daily sickness allowance insurance.


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

by courtesy of (published in Expert Report, issue 4/2009, pages 62-63)

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About the author

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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