Direct Insurance
A direct insurance is a life insurance policy taken out by employers for their employees to which the employees or their dependants are fully or partially entitled.
Contributions made through salary sacrifice confer an irrevocable right to insurance benefits that excludes any subsequent cancellation by the employer of the employee's entitlement to benefits. This means that the employer may not borrow on the insurance policy and the employee retains his pension entitlements from the insurance contract even if the employment is terminated prematurely before the vesting requirements have been met. Under the direct insurance route, employers are not required to divert contributions to protect against insolvency through the pension guarantee fund (PSV).
Contributions to direct insurance policies are tax-exempt up to 4 per cent of the social security contribution ceiling plus a flat-rate EUR 1,800. This flat-rate allowance cannot be used if a claim under § 40b et seq. of the income tax law (EStG) is made at the same time. This additional flat rate amount is tax-free, but not exempt from social security contributions.
Benefits to you at a glance:
- Meets your employees' rights to salary conversion
- Low administrative costs
- Contributions are tax-deductible as operating costs
- Saves social security contributions
- No obligations if employee leaves (employees can take direct insurance entitlements with them - portability)
- No insolvency protection costs, as a general rule
- Balance sheet-neutral