*by Johannes Fiala, Lawyer (Munich), Mediator (Univ.), MBA Financial Services (Univ.Wales), MM (Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Lecturer (Univ. of Cooperative Education), Banker (www.fiala.de)
But there is a guarantee for the pension. The pension will always be paid. (Norbert Blüm)
Unconstitutionality of the offsetting of acquisition costs: In its decision of 15 February 2006 (Ref. 1 BvR 1317/96) on the calculation of the surrender value of a capital-forming life insurance policy in the event of premature termination, the Federal Constitutional Court (BVerfG) determined that the offsetting of acquisition costs etc. by way of zillmerisation is unconstitutional.
The case: The constitutional complaint of a policyholder who had prematurely terminated his capital-forming life insurance policy taken out in 1990 in 1992 was successful, at least in essence. The policyholder initially paid in 16 instalments of DM 252.50 each (a total of DM 4,040), and after the contract was changed from August 1991, he still paid DM 17.80 per month. The reimbursement after termination in May 1992 amounted to DEM 559,30 plus DEM 22,80 in surplus.
Prohibited zillmerisation: The basic structure of “zillmerised” premiums includes the fact that contract conclusion costs (in particular brokerage commission) are not charged separately. The basic structure of “zillmerised” premiums is that the costs of concluding the contract (in particular brokerage commission) are not charged separately, but are offset against the total premium payable. The premium amount is calculated in such a way that it remains the same over the entire term of the contract and that premium payments are first used to cover the acquisition costs.
This ?problem? still exists since the amendment of the insurance law at the end of July 1994 ? until today. Therefore, a legal innovation is just around the corner.
Constitutional core: The policyholder must be able to recognise to what extent acquisition costs may be offset against the premium. In the event of premature termination of the life insurance contract, the policyholder must receive a refund the value of which, even taking into account invoiced acquisition costs, is in reasonable proportion to the insurance premiums paid up to that point.
If policyholders do not know the nature and amount of the acquisition costs to be charged and the method of charging, it is impossible for them to make an independent decision as to whether they wish to conclude a contract at the specific conditions.
Prohibited thwarting of capital formation: The objective of capital accumulation pursued with the conclusion of an insurance contract may not be partially thwarted by the fact that high acquisition costs, the concrete calculation of which, moreover, is not known to the policyholders and the amount of which cannot be influenced by them, can be offset against the premium in the first few years in such a way that the surrender value during this period is disproportionately low or even tends towards zero.
Decisions of the Federal Court of Justice (BGH) of 12.10.2005 (Case No. IV ZR 177/03): Even though the BGH, in its ruling of 12.10.2005, set limits on the charging of acquisition costs in the event of premature termination of the contract by way of supplementary interpretation of the contract, the legislator is still called upon to act. However, the decision of the Constitutional Court can be understood as an indication that the provisional regulation by the BGH will generally also be applicable to contracts concluded longer ago.
The Federal Constitutional Court had already ordered the legislature to adopt a regulation of the law governing life insurance that is compatible with the fundamental rights by 31 December 2007. It is to be expected that the solution to be created by the legislator will also contain safeguards for greater transparency and will have an impact on the charging and offsetting of acquisition costs.
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About the author
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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