Occupational disability - what you should look out for in a disability insurance contract

Occupational disability insurance (ODI) is considered one of the most important forms of cover for employees. Statistically, around one in four working people will become unable to work at least once during their working life. However, not every ODI policy pays out when the time comes. In this guide, you will find out which clauses you should look out for to ensure you are covered should the worst happen.

Why is occupational disability insurance important?

In most cases, the statutory disability pension is far from sufficient to maintain your previous standard of living. On average, it amounts to just a few hundred euros per month. Furthermore, strict conditions apply: the disability pension is only paid if you are able to work for less than six hours (part-time) or less than three hours (full-time) a day in any job — regardless of your qualifications.

Private occupational disability insurance closes this gap and pays a monthly benefit if you are no longer able to carry out your last occupation.

An overview of the key clauses

1. Waiver of abstract referral

This is the most important clause of all. Under a ‘referral to other work’ clause, the insurer can refuse to pay benefits if you could theoretically still carry out another occupation — even if you do not actually do so.

Make sure your policy does not include an abstract referral clause. Most modern policies do not, but there are exceptions.

2. Prognosis period

The prognosis period defines how long the occupational disability is expected to last for the insurance to pay out. A short prognosis period is better for you.

3. Supplementary cover guarantee

With a supplementary insurance guarantee, you can increase your insured occupational disability pension in the event of certain life events — without having to undergo another medical examination. Typical occasions include:

• Marriage or registered partnership
• Birth of a child
• A pay rise of a certain percentage or more
• Purchase of a property
• Starting self-employment

This clause is particularly valuable for young professionals who are still on a low salary at the start of the contract.

4. Retroactive cover

Some policies only pay out from the date of application, not from the onset of occupational disability. Ensure that your policy provides for retroactive cover from the start of occupational disability.

5. Benefits in the event of incapacity for work (AU clause)

Some policies offer a so-called incapacity for work clause: you receive benefits as soon as you are continuously unable to work — i.e. before the occupational disability is officially confirmed. This bridges the often lengthy assessment phase.

6. Waiver of the medical treatment clause

Without this clause, the insurer could require you to undergo a specific treatment or operation before paying out. Good policies waive this requirement.

How much should the occupational disability pension be?

As a rule of thumb, the occupational disability pension should cover 70 to 80 per cent of your net income. Bear in mind that, in the event of occupational disability, you will no longer pay pension insurance contributions, but ongoing costs such as rent and living expenses will continue to accrue.

Health questions — why honesty is crucial

When taking out occupational disability insurance, you must answer a comprehensive set of health questions. These form the basis of the insurer’s risk assessment. Incorrect or incomplete information can have serious consequences when a claim is made.

In the event of a breach of the pre-contractual duty of disclosure, the insurer may contest the contract or withdraw from it — even years after the contract has been concluded. This means: you have paid premiums for years and will receive no benefits in the event of a claim.

Tips on health questions:

• Answer all questions fully and truthfully
• Request your medical records from your GP before submitting your application
• If in doubt, it is better to provide too much information than too little
• Seek assistance from an independent insurance adviser

When should you take out occupational disability insurance?

The sooner, the better — for two reasons:

Health: The younger and healthier you are, the easier and cheaper it is to take out a policy. Pre-existing conditions lead to surcharges, exclusions or even rejection.

Premium amount: Monthly premiums depend heavily on your age when you take out the policy. Someone who takes out a policy at 25 pays significantly less than someone who only starts at 45.

Checklist: What your occupational disability policy should include

• Waiver of abstract referral
• Prognosis period of no more than 6 months
• Guarantee of supplementary cover without a new medical assessment
• Retroactive benefits from the onset of occupational disability
• Contract term until retirement age (67 years)
• Occupational disability pension of at least 70% of net income
• No medical treatment clause
• Exemption from premiums in the event of a claim

Frequently asked questions (FAQ)

What does ‘abstract referral’ mean?

Abstract referral allows the insurer to refuse to pay benefits if you could theoretically still carry out another, comparable occupation — regardless of whether such a job is actually available. Good policies do not include this clause.

How long should occupational disability insurance cover last?

Ideally until retirement age, i.e. until the age of 67. A shorter term may reduce premiums, but leaves a gap in your final working years.

What happens if I forget to mention something in the health questionnaire?

In the event of an inadvertent misrepresentation, the insurer can contest the contract within five years. In the case of a deliberate misrepresentation, this period is even ten years. You should therefore always disclose any pre-existing conditions.

Can I claim my occupational disability insurance premiums against tax?

Premiums for occupational disability insurance can be claimed as pension-related expenses on your tax return. However, the special expenses deduction is capped and is often exhausted by health and long-term care insurance contributions.

What is the difference between occupational disability and reduced earning capacity?

Occupational disability refers to your specific occupation. Reduced earning capacity is a term under social security law and asks whether you are still able to perform any job on the general labour market.

This article is for general information purposes only and does not replace individual insurance or legal advice. Insurance terms and conditions vary depending on the provider — if in doubt, have your policy checked by an independent adviser.