An expat’s guide to business insurance for freelancers

With great freedom comes great responsibilities.

Yes, self-employment can bring more freedom, but it also creates new risks. Fortunately, you can prepare for these risks with insurance.

Being self-employed means taking care of your own insurance. So, what are the main types of insurance for freelancers and small business owners in Germany? Let’s find out.

Here are the five main types of business insurance for freelancers in Germany, plus a note on pensions for good measure.

Types of insurance for small business owners:

1. Verdienstausfallversicherung (Loss of Earnings Insurance)
2. Berufsunfähigkeitsversicherung (Occupational Disability Insurance)
3. Berufshaftpflichtversicherung (Professional Liability Insurance)
4. Privathaftpflichtversicherung (Personal Liability Insurance)
5. Rechtsschutzversicherung (Legal Protection Insurance)
6. Private Altersvorsorge (old age provision / pension insurance)

Verdienstausfallversicherung (loss of earnings insurance)

If you just tried reading the above header out loud, you might need loss of earnings insurance. Just kidding. 

As a freelancer in Germany, you have the option of insuring yourself without entitlement to sick pay. While this saves you money in health insurance contributions, it also poses a risk to your financial security.

Unlike employees, freelancers don’t automatically have a safety net of sick days to call in and still get paid. If you ever fall ill without the proper insurance, you’ll lack the financial support to keep your business afloat while you recover.

If you don’t work, you don’t earn.

Enter Verdienstausfallversicherung, or loss of earnings insurance (also called Krankentagegeld or Krankengeld). This comes into effect in the case of an accident or short-term sickness. Essentially, it’s a daily sickness allowance plus compensation for damages caused by a temporary illness – and it’s especially important for the self-employed.

How much does loss of earnings insurance cost?

As with most insurance, you get what you pay for.

You can usually set the daily sick pay allowance yourself, but most insurers cap the amount based on your average pay from last year.

Premiums for loss of earnings insurance are set by a range of factors, including:

• Age
• Previous illnesses
• The day sick pay starts (e.g., on first or fourth day of illness)

However the most decisive factor, by far, is your choice of provider.

When will I start being paid for sick days?

While employers cover their employees’ illness from day one, the self-employed need to make this decision themselves. You can choose whether your loss of earnings start from the first or fourth day of illness, and set these terms out in your contract.

How long am I covered by loss of earnings insurance?

In Germany, loss of earnings insurance only covers temporary inability to work. The exact date will be specified in your contract. However, if your illness turns into a long-term or permanent disability, you’ll need occupational disability insurance.

Berufsunfähigkeitsversicherung (occupational disability insurance)

In Germany, anyone not on a statutory pension (gesetzliche Rentenversicherung) is hit hardest by a prolonged inability to work. If a serious accident or illness ever occurs, occupational disability insurance can compensate for a large part of your lost income. For this reason, occupational disability insurance is especially for freelancers and the self-employed.

What’s the difference between Verdienstausfallversicherung and Berufsunfähigkeitsversicherung?

Berufsunfähigkeitsversicherung (occupational disability insurance) is for long-term disabilities. Whereas Verdienstausfallversicherung (loss of earnings insurance) can cover you immediately, occupational disability insurance comes into effect if a disability is likely to last for at least six months.

How much does occupational disability cover?

If you suffer a disability that prevents you from continuing your self-employment, you’ll either have to live off life insurance or your personal savings – or, if possible, find another job. If this happens, your standard of living can quickly fall below the comfort level. Berufsunfähigkeitsversicherung is a lifesaver here.

The amount of compensation is dependent on your self-employed earnings, and can be decided individually when you take out a policy. 

How is Berufsunfähigkeitsversicherung paid?

Private Berufsunfähigkeitsversicherung is paid out each month, similar to a state pension. You’ll receive a monthly pension if at least 50% occupational disability has occurred – that is, if you’re unable to work half the time.

Berufshaftpflichtversicherung (professional liability insurance)

Say you’re working freelance as a doctor (remember, freelancing has a different meaning in Germany) and you misdiagnose a patient. Or you’re an architect and make a serious planning error. Professional claims can easily run into the millions and, without protection, threaten your financial wellbeing. 

Professional liability insurance offers financial protection against personal injury and property damage, as well as against financial loss (e.g. loss of income).

Who has to take out Professional Liability Insurance?

Some professional groups have to take out professional liability insurance, either by law or to comply with their professional associations. This means they’re not allowed to practice their profession or become a member of the relevant professional association if they don’t hold a policy. These professions include, for example:

• Architects / engineers
• Doctors / pharmacists
• Security company
• Real estate manager / property manager
• Debt collection agencies
• Financial investment broker
• Notaries
• Lawyers
• Tax consultant

Professional Liability Insurance for the self-employed and freelancers

Unlike large corporations, as a freelancer you most likely won’t have sufficient reserves to pay for costly legal disputes or claims for damages. If you’re not covered by professional liability insurance, you’ll have to pay out of pocket in the event of a claim. Depending on the size of the claim, this can spell financial ruin.

Here are some professions that might consider taking out professional liability insurance:

• IT experts (software developers, IT consultants, system administrators)
• Online shop operator
• SEO / SEA agencies and consultants
• Agencies (advertising, web design, PR, graphic agencies)
• Operator of internet portals, websites, mobile and web applications (apps)
• Consultants
• External data protection officers and consultants
• Experts and appraisers
• Real estate agent 

Privathaftpflichtversicherung (personal liability insurance)

Personal liability insurance is voluntary for the self-employed in Germany. Even so, when it comes to self-employment, personal and professional lives are especially entwined, and… 

Anyone who causes damage must be responsible for it by law. 

If you’re renting an apartment, you probably already have Privathaftpflichtversicherung, as most landlords require it. 

Sometimes compensating for non-professional damages can result in enormous financial consequences. As a freelancer, it’s always wise to protect yourself comprehensively. That way, if anything bad ever happens in your personal life, your personal liability insurance kicks in to cover the damages.

If nothing else, having personal liability insurance offers freelancers peace of mind – a quiet assurance that a burst pipe won’t mean endless hours working for clients you dislike.

What does personal liability insurance cover?

Personal liability insurance offers you (and anyone in your household) protection from claims for damages. 

But it goes one step further than compensating for actual material damage. Private liability also checks whether and to what extent you’re obligated to pay compensation.

Here are the benefits of private liability insurance:

• The cost of restoring or replacing the damaged items
• The costs of consequential damage such as loss of use
• For injured persons:
  • Rescue costs
  • Treatment costs
  • Loss of earnings
  • Renovation costs of apartment or house
  • Compensation for pain and suffering
  • In the case of permanent damage, a lifelong pension
• Fending off unjustified claims (‘passive legal protection’)

Private liability insurance fends off unfounded claims for damages. If someone claims compensation, your insurance provider will assess the veracity of their claim and, if applicable, bear any costs associated with resolving legal disputes. In this sense, personal liability insurance offers a kind of ‘passive’ legal protection in cases of unjustified claims. Again, this can provide freelancers with soothing peace of mind.

Rechtsschutzversicherung (legal protection insurance)

Problems with customers can sometimes escalate into costly legal disputes. This is where legal protection insurance (Rechtsschutzversicherung) comes in handy. You can find protection tailored specifically to freelancers and the self-employed. Legal protection insurance covers the following costs:

• Lawyer fees
• Court costs
• Witness and judicial expert fees
• Costs of your opponent (if you’re held legally responsible)
• Mediation costs (paid to third party, to resolve matters out of court)

Private Altersvorsorge (old age provision / pension insurance)

The self-employed pay little to no statutory pension contributions in Germany. This means it’s on you to provide your future self’s financial security. We know, it’s almost impossible to think that far ahead when you’re just starting out, but… 

Imagine your older self. (Already hurts, right?) Now imagine you don’t have enough money to live comfortably.

Sorry we had to make you sad – we only have your best interests at heart! Freelancers should start their own retirement provision as early as possible, to afford themselves future luxuries once they retire. 

Rürup-Rente

Rürup-Rente is Germany’s ‘basic pension’. It was developed in 2005 and is perfectly suited to freelancers and the self-employed, who don’t pay into statutory pension insurance. German states promote Rürup-Rente contributions through a high tax deduction option. (Link in German)

Don’t forget to pay the Rente!

The basic pension can be combined with various add-ons to cover some risks – such as occupational disability or even death. Okay, let’s not get too dark. But it should be said that in the event of your death, your Rürup-Rente policy will pay a pension to surviving dependents (e.g., spouse, registered partner or minor children).