16. May 16

Cuts to life insurance – Consider withdrawal

The idea of life insurance forming a component of one’s retirement plan is increasingly losing credibility. According to media reports, consumers ought to anticipate further cuts in 2016.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: Taking out a life insurance policy or private pension scheme has been an important element of many consumers’ retirement plans. Thanks to the ongoing policy of low interest rates, these plans are now looking shaky. Life insurance policies are becoming less attractive, and policyholders should brace themselves for more cuts to their rate of return in 2016. Media reports are suggesting that the average rate of return could fall below 3 per cent for the first time.

That being said, prematurely terminating one’s life insurance policy is not a credible alternative in most cases, as this normally entails a disappointing surrender value and consumers incurring financial losses. Withdrawing from or unravelling life insurance policies or pension schemes may represent a more lucrative option.

According to the case law of the Bundesgerichtshof (BGH), Germany’s Federal Court of Justice, withdrawal is a possibility if the policyholder was not properly informed about his option to withdraw. As a result, the withdrawal period never commenced and consequently it is still possible today to withdraw from legacy contracts. While the jurisprudence of Germany’s highest court initially applied to life insurance policies that were taken out in accordance with the so-called “Policenmodell” (policy model) between 1994 and 2007, the BGH extended this jurisprudence to policies concluded pursuant to what is termed the “Antragsmodell” (offer-acceptance model).

Following a successful withdrawal, the policy in question is rescinded. This means that the consumer will recover the premiums he has paid to date plus interest. The insurer is allowed to retain a certain amount for the period in which insurance coverage was provided as well as the tax on capital gains and solidarity surcharge paid for the policyholder. It has emerged from another consumer-friendly ruling of the BGH that consumers cannot be encumbered with any closing or administrative costs; these have to be borne by the insurance company. If the policy has already been terminated, it still remains possible to withdraw from it retrospectively.

Consumers who wish to withdraw from their life insurance policies can turn to a lawyer who is versed in the fields of banking law and capital markets law.

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