It ensures continued income, for example in the event of a long-term illness. It is essential to take out a policy as early as possible and pay close attention to certain clauses.
Many people prefer not to think about it, but reality shows how quickly it can happen—and it can affect anyone. A traffic accident or a severe case of COVID-19 can be enough to make it impossible to continue working. Employers only continue paying wages for six weeks. After that, health insurance provides sickness benefits for a maximum of 78 weeks. Once that ends, payments stop, and the individual must rely on unemployment benefits. By that stage, financial strain is almost inevitable.
Securing Millions in Income
A disability insurance policy can help cushion this financial risk. According to Merten Larisch, insurance expert at the Consumer Advice Center of Bavaria, such a policy is an effective tool to protect what he calls “the treasure” of a lifetime’s net income. Depending on earnings, that treasure amounts to one or even several million euros.
Those who believe they can invest the money themselves instead of buying insurance are unlikely to ever reach the payout level of a policy. For example: if someone becomes unable to work at age 37 and needs €3,000 net per month until the end of their life, they would require savings of €1.08 million—without accounting for inflation.
The Earlier, the Better
The most important recommendation, therefore, is to purchase disability insurance as early as possible. Ideally, parents should arrange it for their school-age children, Larisch advises. At this stage of life, most people are healthy and can be accepted into the system without difficulty. In addition, premiums are lowest when taken out young.
Pre-Existing Conditions Pose Barriers
Applying later in life with health issues can make things more difficult. Often, a health check is required, and in the worst case, insurers may reject the application.
According to the Bavarian expert, even ongoing treatment can be a problem. Allergies may complicate access, while back problems are considered particularly critical. Furthermore, applicants must disclose all medical treatments fully and accurately, since insurers can later verify information with health insurance records.
Watch Out for Key Clauses
Some insurance companies exclude numerous risks in their contracts. One crucial point is the so-called abstract referral clause. This allows insurers to require a person who can no longer perform their job to switch to a different type of work. Experts strongly advise against such clauses—coverage should apply only to the specific occupation held.
Other unfavorable clauses may also be hidden in contracts, easily overlooked or misunderstood. Failing to carefully review terms can put policyholders at a disadvantage. For this reason, the Consumer Advice Center of Bavaria recommends consulting an independent insurance advisor. These professionals, who can be found through the Federal Association of Insurance Advisors, do charge fees, but their guidance can pay off in the long run.
Significant Price Differences
The differences between providers lie not only in contract details but also in premium amounts. For identical coverage, insurers may charge widely varying fees. A study by Stiftung Warentest revealed striking discrepancies. For instance, a 30-year-old controller seeking a monthly disability pension of €2,000 until age 67 could choose between policies costing either €643 or €3,071 annually.
This example clearly shows: when taking out disability insurance, it is crucial to take time, compare offers carefully, and never sign a contract in haste.
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