If a life insurance contract falls within the estate, it is first and foremost a matter of all rights of structuring; such as termination, revocation of a subscription right, contesting the insurance contract, as well as revocation of the conclusion of the contract itself. The legal claim for payment of the contractual sum insured is directed against the insurer (VR), and does not fall within the estate of the beneficiary.
If “the heirs” are entitled to subscribe, however, they retain the subscription right even if the inheritance is terminated. If “the spouse” has been appointed as the beneficiary, it is always the spouse at the time of granting the subscription right – despite divorce (BGH, judgement of 14 February 2007, ref. IV ZR 150/05).
Life insurance lottery
A revocable subscription right in the event of death is legally a “nullum”, not even an entitlement – during one’s lifetime it can always be revoked or amended vis-à-vis the insurer by notification of the reserved resolutory condition. Similarly, a nullum is also a legacy if the bequeathed object is no longer in the estate at the time of death, for example because it has been sold or given away.
As a rule, the basis (in the so-called value ratio) for the revocable subscription right is a gift “in the event of death”: If this gift was agreed between the testator and the beneficiary during his or her lifetime, the revocable subscription right will cease to apply upon the occurrence of the condition precedent of death – in return, the beneficiary acquires a new legal claim of his or her own against the BoD for payment of the insured sum, §§ 328, 331 BGB.
If the revocable beneficiary knows the subscription right, this is a gift which is deemed to be executed upon occurrence of the insured event, § 518 II BGB (German Civil Code) (BGH, judgement of 14.07.1993, Az. IV ZR 242/92.). Similarly, if the testator during his or her lifetime, for example, uses a bank account, securities account or a building society savings contract with the suspensive condition of (pre)death, as a contract in favour of third parties in the event of death.
Subscription right despite reassignment of the insurance from a bank to the heirs
The Federal Court of Justice (BGH, ruling of 18 January 2012, file no. IV ZR 196/10) decided that the resolutory conditional revocation of the subscription right provision was terminated with the reassignment of a life insurance policy to the heirs by a bank, i.e. the release of a loan collateral. The revocable beneficiary thus acquires the legal entitlement to the death benefit.
Conversely, however, even the irrevocable beneficiary can go away empty-handed if the policyholder had reserved the surrender value after his or her cancellation before the insurance expired – i.e. ultimately only the death benefit was granted to the beneficiary (BGH, VersR 96, 1089, and VersR 01, 883).
Race between heirs and beneficiaries
If the beneficiary or entitled person does not yet know of his luck, the insurer as messenger of the deceased must first of all forward the offer of gift to the entitled person, who can tacitly accept it, §§ 139 II, 153, 151 BGB. Until this happens, the heirs, a curator of the estate, an administrator of the estate and an estate insolvency administrator or an executor of a will can still revoke the order of the testator to submit the offer for the gift to the insurer (BGH, ruling of 21.05.2008, file no. IV ZR 238/06).
If the insurer’s offer is still in transit, the heirs can declare the revocation directly to the beneficiary, § 130 I 2 BGB. It often takes weeks or months, sometimes years, until heirs can legitimize themselves by certificate of inheritance. The beneficiary is at an advantage if he can prove his knowledge of the gift during his lifetime, for example by submitting a copy of the policy – because if the gift offer is revoked effectively and in good time, the insurance benefit falls into the estate.
No raisin theory for (estate) insolvency
It would not be free of error of law to acquire the testator’s assets as a beneficiary or by means of a contract in favour of third parties in the event of death, if insolvency then occurred. The acquisition in rem of the insurance benefit cannot be prevented at first because it is not paid out of the insolvency estate upon death, § 91 of the German Insolvency Code (InsO). However, the order in rem for the fulfilment of the gift can be contested, § 4 Anfechtungsgesetz (AnfG), § 134 InsO. Then the surrender value must be issued at the time of death (BGH, judgements of 28.04.2010, Ref. IV ZR 73/08 and IV ZR 230/08).
In terms of time, the acquisition of a claim in an insured event is to be taken into account, § 8 AnfG, § 140 I InsO (BGH, NJW 2004, 214 f.). In addition, the premium payments from the last four years to the insurer can be independently contested as an indirect benefit. Persons entitled to a compulsory portion can also demand that the heir supplement the compulsory portion by adding the surrender value on the day of death (BGH, judgements of 28 April 2010, Ref. IV ZR 73/08 and IV ZR 230/08). In the case of the irrevocable subscription right, the supplementary claim in the amount of 1/10 will be reduced year by year, § 2325 III BGB.
Design rights remain with the policyholder
Despite the granting of a subscription right, the policyholder retains rights such as the right of termination, unless otherwise agreed. However, such design rights cannot be assigned and seized in isolation (BGH, judgment of 02.12.2009, ref. IV ZR 65/09). For example, the right of termination is only transferable together with the right to the surrender value (BGH, ruling of 18 June 2003, ref. IV ZR 59/02).
However, the rights of structuring together with the surrender value would be seizable from the policyholder – but if the pledgee omits the ancillary or structuring rights (e.g. cancellation, revocation of the subscription right) expressly by means of a (separate) declaration of intent, the revocable beneficiary acquires subscription rights upon death – and the sovereign seizure is void (Zweibrücken Higher Regional Court, judgment of 14 April 2010, file no. 1 U 183/09; Federal Supreme Court, decision of 12 October 2011, file no. IV ZR 113/10).
The design rights for a life insurance policy must be exercised demonstrably and in writing to the insurance company. Notifications of change or revocation of the subscription right must be sent to the insurer before the occurrence of the insured event – not to an insurance broker or by means of a statement in the will (LG Dortmund, judgement of 28.02.2008, ref. 2 O 214/07).
According to the insurance certificate, the subscription right will rarely arise “from the insurance application and later dispositions”, so that the revocation would also be effective by will (OLG Jena, judgment of 21.10.2003 Az.: 8 U 410/03). This is because, as a rule, the change of the subscription right (also by will) according to § 332 BGB is excluded by § 13 of the General Life Insurance Conditions (ALB) after death. The testator does not intend to notify the insurer of any changes in the will (BGH, ruling of 14.07.1993, ref. IV ZR 242/92).
Perpetual right of revocation of the policyholder and the heirs
Frequently, especially with regard to life insurance policies concluded in the years 1995-2007, the insurers have failed to provide effective information on the right of revocation under § 5a VVG old version. Then this right continues “eternally”, for example, if the instruction is hidden somewhere in the small print, or the reference is missing that timely dispatch is sufficient, or the option of the revocation in text form had not been pointed out.
This right of revocation also falls, for example, under the administrative authority of the executor of the will, §§ 331, 2205 II BGB: However, the testator could order in the will that certain rights of shaping should not be exercised. If the insurer pays out the surrender value despite an effective revocation, it must repeat the money with the previously revocable beneficiary (BGH, ruling of 02.06.2015, ref. XI ZR 327/14), with the risk of enrichment, §§ 818 III, IV, 819 I BGB.
In the event of effective cancellation, the policyholder or heir will have to have this earlier payment by the insurer credited to him and may repeat the amount with the beneficiary. Nevertheless, the revocation offers the prospect of considerable subsequent payments by the insurer, because the insurer may not retain for itself either acquisition or other costs or calculated profits or the economic advantages of the use of capital.
Even if the death benefit has been paid out to the beneficiary under the insurance policy, the insurer must repay to the heirs all premiums plus all benefits, but deduct the risk premiums, after the contract has been cancelled. Since he is allowed to keep the risk premiums, the insurer is inevitably also liable for the death benefit paid with them. However, the heir who revokes the contract can also get this from the beneficiary, because the basis for the subscription right is also destroyed by the revocation of the contract.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.experten.de (published on 24.08.2016)
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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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