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Is a term life insurance payout tax free in Germany?

In short

There is no income tax on the death benefit. Inheritance tax can apply, though, if the person who died was also the policyholder. Spouses have 500,000 euros tax free, children 400,000 euros, unmarried partners only 20,000 euros. If you insure each other crosswise, the payout arrives completely tax free.

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Is a term life insurance payout tax free in Germany?

What it costs

Worked examples using the current allowances and rates, each assuming no other assets received from the same person.

Example	Typical range
Spouse receives 250,000 euros as beneficiary	0 euros tax, allowance 500,000 euros
Child receives 300,000 euros as beneficiary	0 euros tax, allowance 400,000 euros
Unmarried partner receives 150,000 euros, standard setup	about 39,000 euros tax
Unmarried partner receives 250,000 euros, standard setup	about 69,000 euros tax
Same couple, insured crosswise	0 euros tax for any amount

Our own examples based on the allowances and rates in the German Inheritance Tax Act, as of September 2026. Your case may differ, for example because of other gifts or the special pension allowance. This is not tax advice.

Worked example

Unmarried couple, 250,000 euros death benefit

She took out the policy on her own life and named him as beneficiary. After her death the tax office calculates as follows.

Death benefit	250,000 euros
Allowance, tax class III	20,000 euros
Taxable amount	230,000 euros
Tax rate 30 percent	69,000 euros inheritance tax

Her partner receives 181,000 euros. Had they insured each other crosswise, he would have kept the full 250,000 euros.

Income tax: the payout stays free

German income tax on life insurance only targets the gain when a policy is survived or surrendered. A payment on death is not covered by that rule.

Term life insurance pays only on death, so your family receives it without income tax or withholding tax. It does not go on your income tax return either.

Inheritance tax: this is the real trap

If you take out a policy on your own life and name someone else as beneficiary, that person receives a benefit when you die. Under German law this counts as an acquisition due to death, just like an inheritance.

The payout then counts towards the taxable amount, even though it bypasses your estate and your will. What matters is who held the contract as policyholder, not whose life was insured.

How much stays tax free depends on the relationship to the person who died.

Recipient	Allowance	Rate on the first 75,000 euros above it
Spouse or registered civil partner	500,000 euros	7 percent
Child or stepchild	400,000 euros	7 percent
Grandchild	200,000 euros	7 percent
Sibling, niece, nephew	20,000 euros	15 percent
Unmarried partner, friend	20,000 euros	30 percent

Crosswise cover: how it stays fully tax free

With cross insurance, each partner takes out their own policy on the other's life. You are then policyholder, payer and beneficiary of your own contract.

If your partner dies, you receive money from your own policy. There is no acquisition due to death, so no inheritance tax, however large the sum.

To keep the tax office on board, each of you must pay premiums from your own account. If everything runs through a joint account, the office may see a gift and challenge the setup. This matters most for unmarried couples and business partners.

If you or your partner live abroad

German inheritance tax applies if either the person who died or the recipient lives in Germany at the time of death. An international couple where only one partner lives here is therefore still inside the German rules.

Your home country may tax the same payout as well. Double tax treaties on inheritance exist with only a few countries. If family members live in different countries, have the setup checked before you sign.

Beneficiary: revocable or irrevocable

The beneficiary designation decides who gets the money. Without one, the payout goes into the estate and is shared among all heirs, which can take a long time.

A revocable designation can be changed at any time, an irrevocable one only with the beneficiary's consent. This matters after a separation: an old entry naming a former partner stays valid until you change it.

We are an underwriting agency, not tax advisers. For large sums please have the setup checked by a tax adviser first.

Step by step

Check who is policyholder and whose life is insured.
Find out which allowance applies to the person who should receive the money.
Add the death benefit to other assets expected from the same person.
If you are an unmarried couple, set up two separate policies crosswise.
Pay each premium from the policyholder's own account and keep it that way.
Put the beneficiary in writing and review it after separation or marriage.

Checklist

Death benefit is always free of income tax
For unmarried couples, policyholder and beneficiary are the same person
Premiums come from your own account, not a joint one
Beneficiary is named and up to date
Allowance is enough alongside property and savings
Residence of all family members checked if anyone lives abroad

Common mistakes

Assuming tax free means tax free: that only applies to income tax
As an unmarried couple, insuring your own life and just naming your partner
Paying crosswise policies from a joint account
Forgetting to change the beneficiary after a separation
Counting on the allowance twice although a property also comes from the same person

Questions and answers

Frequently asked

Do I have to declare the payout?

Not on your income tax return. If inheritance tax may be due, you must notify the tax office. The insurer reports the payout anyway.

Does a spouse pay inheritance tax on the death benefit?

Usually not, because the 500,000 euro allowance covers typical sums. It only gets tight if property or larger assets come on top.

What exactly is cross insurance?

Two separate policies: you insure your partner's life, your partner insures yours. Each pays their own premium and receives money from their own contract.

Can I switch an existing policy to crosswise?

Many insurers allow a change of policyholder, but the tax office may treat it as a gift. Have it checked before you do it.

Can I deduct the premiums from tax?

They count as other provident expenses. For employees, the cap is almost always used up by health and care insurance, so entering them usually changes nothing.

What if no beneficiary is named?

The money falls into the estate. It is shared among the heirs, is liable for the deceased's debts and can be blocked for a long time in a community of heirs.

Sources

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