Occupational disability insurance (BU) protects your income if you can no longer perform your own occupation for health reasons. Not every contract pays out reliably when it matters. This guide explains which clauses determine the quality of a BU contract and how high the insured pension should be.
Why occupational disability insurance is worthwhile
The statutory reduced earning capacity pension is in most cases not enough to maintain your previous standard of living. Strict requirements also apply: it is only paid if you can work less than six hours a day (partial reduced earning capacity) or less than three hours a day (full reduced earning capacity) in any job at all, regardless of your qualifications.
Private BU insurance closes this gap. It pays a monthly pension if you can no longer perform the occupation you last held.
The most important clauses in the BU contract
1. Waiver of abstract referral
The waiver of abstract referral is regarded as the key quality feature of a BU contract. If the contract includes abstract referral, the insurer can refuse benefits if you could theoretically still perform another occupation, even if you do not actually perform it.
| Clause | What it means for you |
|---|---|
| With abstract referral | The insurer can refer you to another occupation, even a purely theoretical one |
| Without abstract referral | All that matters is whether you can still perform your own occupation |
Make sure your contract waives abstract referral. Most modern policies do, but there are exceptions.
2. Prognosis period
The prognosis period sets out how long the occupational disability must be expected to last before the insurer pays. A shorter period is better for you.
| Prognosis period | Assessment |
|---|---|
| 6 months | Good: the standard for good policies |
| 12 months | Less advantageous |
| 36 months | Poor: too long a wait |
3. Guaranteed increase option
A guaranteed increase option lets you raise the insured BU pension on certain life events without a new health assessment. Typical occasions are:
- Marriage or registered civil partnership
- Birth of a child
- A pay rise above a certain percentage
- Purchase of a property
- Becoming self-employed
This clause is particularly worthwhile for young professionals whose salary is still low at the start of the contract.
4. Retroactive payment
Some policies only pay from the date the application is submitted. Check therefore whether your contract provides for retroactive payment from the onset of the occupational disability. Otherwise the months between onset and application are lost.
5. Benefits during incapacity for work: the AU clause
Some policies include a so called AU clause. This means you already receive benefits once you have been continuously certified unfit for work, that is before occupational disability is formally established. This bridges the often lengthy assessment phase.
6. Waiver of the medical instruction clause
With a medical instruction clause the insurer could require you to undergo a particular treatment or operation before paying out. Good policies waive this option.
How high should the BU pension be?
As a rule of thumb, the BU pension should cover 70 to 80 percent of your net income. Bear in mind that while benefits are paid you no longer pay pension insurance contributions, but ongoing costs such as rent and living expenses continue.
| Net income | Recommended BU pension |
|---|---|
| 2,000 € | 1,400 to 1,600 € |
| 3,000 € | 2,100 to 2,400 € |
| 4,000 € | 2,800 to 3,200 € |
Health questions in the application: consequences of incorrect statements
When taking out BU insurance you have to answer extensive health questions. For the insurer they form the basis of the risk assessment. Incorrect or incomplete statements can cost you your cover.
In the event of a breach of the pre-contractual duty of disclosure, the insurer can contest the contract or withdraw from it, even years after it was concluded. In that case you may have paid contributions for years and receive no benefit when it matters.
For answering the health questions, the following applies:
- Answer all questions completely and truthfully
- Request your patient file from your GP before submitting the application
- When in doubt, disclose too much rather than too little
- Get support from an independent insurance adviser
When should you take out BU insurance?
Taking out cover early pays off twofold. The younger and healthier you are, the easier and cheaper it is to take out cover. Pre-existing conditions lead to loadings, exclusions or even rejection of the application.
The level of the premium also depends heavily on your age at entry. Anyone taking out cover at 25 pays considerably less than someone who only starts at 45.
Checklist: these points belong in your BU contract
- Waiver of abstract referral
- Prognosis period of no more than 6 months
- Guaranteed increase option without a new health assessment
- Retroactive payment from the onset of the occupational disability
- Contract term running until retirement age (67 years)
- BU pension of at least 70 % of net income
- Waiver of the medical instruction clause
- Exemption from premiums while benefits are paid
This article provides general information and does not replace individual insurance or legal advice. Policy terms vary by provider. If in doubt, have your contract reviewed by an independent adviser.
