Planning replaces chance with error

Death, divorce and insolvency – What happens to life insurance?

Some policyholders (VN) decide too late that they would like to change the subscription right of a life insurance policy(ies). If the policyholder instructs his broker to make the change, it is important that this is regularly done in writing in accordance with the insurance conditions. If the policyholder is already deceased when the insurer (VR) receives the notification, the request for change will not be considered.

In this case, the originally revocable beneficiary has already acquired the irrevocable right to the insurance benefit upon the death of the policyholder (Dortmund Regional Court, judgment of 28.02.2008 – 2 O 214/07). If the broker is responsible for the delay in notifying the change, he often owes the “new” beneficiary the sum insured as compensation.

Race between beneficiary and heirs

Often the policyholder has named a (revocable) beneficiary to the VR. If, however, the beneficiary is not yet aware of his good fortune, a gift is only made after death, as it were, when the VR, as the messenger of the deceased, offers the insurance benefit. If the heir knows before the VR that a death has occurred, the heir can effectively revoke the messenger order vis-à-vis the insurer and the gift offer vis-à-vis the beneficiary, so that the beneficiary owes the surrender of the subscription right (OLG Hamm, judgement of 03.12.2004 – 20 U 132/04).

revocation in one’s will

The case is similar if the beneficiary learns of the revocation of the subscription right in the will as a messenger before receipt of the offer by the insurer (BGH judgment of 14.07.1993 – IV ZR 242/92). How the case turns out in the end may depend on chance. If, however, the policyholder had already informed the beneficiary of the subscription right himself during his lifetime, this constitutes a gift contract, so that a later revocation would in any case be too late.

Overindebtedness due to life insurance in the estate

Occasionally, overindebtedness of the estate occurs because the cash surrender value of the life insurance policy is forfeited, and “in exchange” a beneficiary receives the policy proceeds. In this case, the administrator of the estate or the insolvency administrator will try to demand reimbursement of at least the premiums paid in by the policyholder from the beneficiary. The situation is similar if a beneficiary of a compulsory portion demands a supplement to the compulsory portion from the beneficiary because the insurance benefit had eroded the estate to the amount of only its surrender value. The basis of assessment is then often the surrender value, not the sum insured, and not the sum of the insurance premiums paid by the testator (BGH judgement of 23.10.2003 – IR ZR 252/01).

Insolvent testator favours his widow

However, the Federal Court of Justice (BGH) (decision of 27.04. 2010 – IX ZR 245/09) ruled that the (revocable) beneficiary originally acquires his claim against the life insurance company himself when the insured event occurs. These assets (of a term life insurance policy, therefore without surrender value) were therefore at no time part of the decedent’s or estate’s insolvency estate.

With the occurrence of the insured event, the revocable subscription right pursuant to § 159 VVG, a completely unsecured hope of future acquisition, had completely lapsed. However, the decedent’s insolvency administrator may contest under section 134 of the InO. In this case, the beneficiary must always surrender the entire sum insured, because the action that can be contested does not occur until the occurrence of the insured event (BGH ruling of 23.10.2003 – IX ZR 252/01).

The legal effect of the creditor disadvantage only occurs with the occurrence of the insured event if the subscription right was revocable. The situation is different if the granting of the subscription right was irrevocable and if this does not fall within the contestable four-year period prior to the application for the opening of insolvency proceedings, section 134 InsO. Only in this case could the insolvency administrator claim back only the insurance premiums paid during the critical period. If the beneficiary himself (also) had become insolvent, he would have a so-called right to separate satisfaction.


No termination by creditor of an irrevocable beneficiary

In company pension schemes, employees are often granted an irrevocable subscription right. Nevertheless, the policyholder or employer regularly retains the rights of structuring the contract, such as rescission and termination. Termination by a creditor of the beneficiary after attachment is therefore invalid (BGH ruling of 02.12.2009 – IV ZR 65/09). Even if the employer were to become insolvent, this would not change anything.

However, the beneficiary may have a claim against the former employer to exercise or subsequently transfer the right of termination, particularly if the former employee has a “right to take over the insurance contract”. This right is attachable and can also be enforced in individual cases by way of a supplementary liquidation. The fact that the employer has long since been deleted from the commercial register is irrelevant.


Subscription right for the (right) spouse

If only “my spouse” was specified as the beneficiary in the insurance contract, this applies in each case to the last spouse without the need for a revocation of the subscription right. In the case of non-marital cohabitation, however, the subscription right must be revoked (BGH ruling of 08.07.1996 – II ZR 340/95). If, however, there is a divorce and the beneficiary was named, a so-called “cessation of the basis of the transaction” can at best serve as an argument for the heir to have the beneficiary return the insurance benefit. Case law considers the following to be a sufficient basis for the transaction
for example, a (at the time) necessary credit protection or joint children.


Millions without a master at financial houses

Important documents are often lost, especially when moving house. Thus, it happens that neither heirs nor beneficiaries ever find out about their claims against life insurers. The legislator has not imposed any obligation on financial institutions to investigate and report, for example to the probate court. There are recent cases of insurers adjusting their portfolios of death benefit policies for mostly well over 100-year-olds by several thousand policyholders in one fell swoop, after no news had been received for decades. The situation is similar year after year for heirs if the deceased had black money in Liechtenstein or Switzerland but no one was taken into confidence about it and no documents about it can be found in the deceased’s household.

Danger and opportunity: foreign law

However, such so-called dormant accounts with insurers and especially banks can become a problem for financial institutions as soon as they become vulnerable in a foreign jurisdiction, . B. due to listing in the USA. For example, some banks and insurers had to raise large sums in the millions for Holocaust victims. This was set in motion by a single employee of a major Swiss bank who was involved in the shredding of corresponding old files on unnamed accounts.


The (revocable) beneficiary is better protected if he receives a written deed of gift as evidence during his lifetime. However, the will should not contradict this in the best case. If insolvency is imminent, it is better to “give with warm hands” instead of giving the beneficiary completely hopeless hope in the end by means of a revocable subscription right.

A gift subject to the lifetime use of the income – except in the case of insolvency – can secure the desired result. Not all problems can be solved by an irrevocable subscription right via life insurance. Also the way over a charitable trust foundation to be furnished to lifetimes under a life annuity reservation or additionally lifelong living right for itself and/or “beneficiaries” can avoid straight the insurance-own pitfalls and secure the fortune against insolvency, apart from the tax advantages by donation of the foundation.

Didn’t you understand anything?

If you have now come to the realisation that the whole issue is probably important, but you don’t really understand how you should proceed with your existing life insurance policy to really get everything right, then talk to your wealth adviser, tax adviser or solicitor.


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


by courtesy of (published in Network Karriere 06/2011, pages 36-37)

and (published in The Dentist’s Week 08/2011, pages 28-29 under the headline: Many a policyholder changes his life insurance subscription right too late).





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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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