Germany Life Insurance Tax Guide (Besteuerung von Lebensversicherungen)
A guide to the German tax treatment of life insurance policies (Lebensversicherungen). Old policies (issued before 31 December 2004): 50% of the gain is tax-free if the policy runs ≥12 years and pays as a lump sum (Kapitalauszahlung); the other 50% is taxed at your marginal rate. New policies (issued after 1 January 2005): gains are fully subject to Abgeltungsteuer (25% + Soli) on surrender or payout. Certain qualifying fund-based policies (with ≥60% death benefit and ≥12-year term) are tax-free on maturity. Rürup (Basisrente) pension policies offer deductible contributions (up to €27,566 in 2026) but payouts are fully taxable.
Life insurance has historically been a tax-privileged investment vehicle in Germany, but the rules changed significantly in 2005. The tax treatment depends on when the policy was issued, the payout structure (lump sum vs pension), and whether the policy qualifies for the special tax-free status. For related reading, see our Personal Income Tax Guide → and Tax Filing Guide →.
Old Policies (Altverträge — Issued Before 31 Dec 2004)
- 50% tax-free — lump sum (Kapitalauszahlung): For policies that were taken out before 1 January 2005 and meet the qualifying conditions (term ≥12 years, premiums paid for ≥12 years, death benefit ≥60%), 50% of the capital gain (difference between payout and total premiums paid) is tax-free. The remaining 50% is taxed at your personal marginal income tax rate (Einkommensteuersatz).
- Full tax-free (rare): In certain limited cases, old policies that meet specific conditions (e.g., term ≥12 years and payout after age 60) could be entirely tax-free. However, this grandfathering provision has been largely phased out and applies only to very old contracts.
- Ertragsanteil — pension payouts (Rente): If the old policy pays out as a lifelong pension (rather than a lump sum), only the Ertragsanteil (earnings portion) is taxable. The Ertragsanteil depends on your age at first payout: at age 65, ~18% of each pension payment is taxable; at age 60, ~22%; younger ages have higher taxable percentages. This makes pension payouts very tax-efficient for old policies.
- Surrender before maturity: If an old policy is surrendered (Rückkauf) before the 12-year term, the full capital gain becomes taxable at your marginal rate — no 50% exemption. The bank/financial institution withholds 25% Abgeltungsteuer on the gain, and you report it in your tax return for possible correction (Günstigerprüfung).
New Policies (Neuverträge — Issued After 1 Jan 2005)
- Abgeltungsteuer on surrender/payout: For policies taken out after 1 January 2005, the capital gain on surrender (Rückkauf) or maturity is fully subject to Abgeltungsteuer (25% + Solidaritätszuschlag + Kirchensteuer if applicable = ~26.375% total). The gain is simply the payout minus total premiums paid. The tax is withheld by the insurance company (or bank) as Kapitalertragsteuer.
- Tax-free qualifying policies (§20 Abs. 1 Nr. 6 EStG): A new policy can be entirely tax-free on maturity if it meets three conditions: (a) the policy runs for at least 12 years, (b) the death benefit is at least 60% of total premiums (or 60% of the sum insured), and (c) the payout is taken as a lump sum. If these conditions are met, the entire capital gain is tax-free — including the fund-based gains from the underlying investments. This is an attractive structure for high-net-worth individuals.
- Fund-based life insurance (fondsgebundene LV): The tax-free treatment under §20(1) Nr. 6 EStG applies equally to fund-based life insurance policies (where premiums are invested in ETFs or mutual funds), provided the conditions (≥12 years, ≥60% death benefit) are met. This is a rare example of tax-free capital gains in Germany and makes these policies popular for long-term wealth building.
- Pension policies (Rürup/Basisrente): Rürup contracts are not life insurance but pension plans. Contributions are deductible as Sonderausgaben up to €27,566 (single) / €55,132 (married) in 2026. The deductible portion increases annually until 2025, when 100% of contributions (up to the limit) became deductible. Payouts are fully taxable as retirement income (from 2025: 100% of the payout is taxable). For high earners, the deduction benefit often outweighs the future tax on payouts.