When the revocation of life, pension and other insurance policies can be worthwhile
Since a decision by the European Court of Justice (ECJ) on 19 December 2013 (Case C-209), insurance customers are increasingly checking whether they can still revoke their insurance policies. The aim is to get back the insurance premiums paid or, in many cases, to unwind insurance policies with negative returns. However, without prior actuarial, legal and tax review, this can be detrimental.
Withdrawal by revocation for an unlimited period of time and despite prior notice of termination
Insurance companies have often failed to adequately and effectively inform the policyholder about the right of withdrawal. The ECJ ruled that this right to revoke or object to the insurance contract is not subject to any limitation period and is still possible after termination. In § 5a of the German Insurance Contract Act (VVG), which was valid until the end of 2007, the legislator had set a time limit on revocation, which, according to the new case law, has proven to be a hidden loophole in all contracts of life insurance companies – due to EU law, the time limit therefore does not apply.
Also according to today’s legal situation, a policyholder can exercise this right of cancellation in case of omitted instruction, in case of legally insufficient text of the cancellation instruction, or also in case of incomplete handing over of the insurance documents, § 8 VVG.
Insurance contracts often pending and revocable until today
The Federal Court of Justice (BGH, judgment of 07.05.2014, Case No. IV ZR 76/11) clarified that the limitation period for claims for repayment does not begin until the revocation is exercised. The period is then three years to the following 31.12. of the year. By revocation the insurance contract becomes finally ineffective, so that after enrichment right the back completion of the legally groundless premium payments has to take place, §§ 812 I 1, 818 II civil law book (BGB).
Offsetting only the value of an insurance cover
However, the BGH also commented on the legal nature of the insurer’s benefit, because it sees the insurance cover provided, and not an insurance benefit received, as an advantage to be offset. This means that the insurer may only keep that portion of the premiums which corresponds to the insurance cover „enjoyed“ by the policyholder. This means that the insurer has the burden of proof to disclose its calculation, because, for example, the insurer cannot deduct acquisition and administration costs. Such settlements by the insurer are prone to error, and should then be checked by an expert in case of doubt.
Insurance payments already made can be retained despite revocation
For example, if EUR 100,000 in premiums were paid and the risk premium for the death benefit of EUR 1,000,000 totalled EUR 10,000, then EUR 90,000 plus the risk premium for the death benefit of EUR 1,000,000 could be paid. if applicable, interest (or benefits derived) may be reclaimed in the event of revocation.
Even a death benefit of EUR 1,000,000 received, for example, would not have to be returned in the event of revocation. Otherwise, the revocation would hardly ever be worthwhile for the person who has received a higher insurance benefit.
If an insured person has received the death benefit of EUR 1,000,000, he or she may keep this benefit even in the event of revocation, because it has already been paid with the EUR 10,000 risk premium to be offset in the mirror image, and receives an additional EUR 90,000 in premiums back as a result of the revocation.
Anyone who also had supplementary occupational disability insurance (BUZ) with annuity payments will have the BUZ risk contributions deducted, but the annuity financed from this risk contribution may be retained not only for the past but also for the future. This is because it was paid with the premium retained by the insurer until the start of the occupational disability pension at which the insured event occurred.
In addition to the repayment of premiums – with the exception of those for insurance cover provided by the insurer – the benefits derived by the insurer must also be surrendered. This also includes retained surpluses or kickbacks from fund investments and the income drawn thereon in the amount of the return on equity, often up to more than 30%. The correct calculation of the benefits drawn over often more than a decade is an actuarially and also from a legal point of view a demanding task. Even in the case of term life insurance or pure occupational disability insurance, the insurer will not be allowed to retain the entire premium in the event of revocation.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
http://www.handwerke.de (Computers in the Trades, Issue 8-9, 2014)
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