term life insurance relieves the financial consequences of the death of an insured person, usually the spouse. If the risk arises, the person entitled to receive the agreed insurance benefit will be paid. However, there are considerable inheritance tax risks here, as the payment without contractual optimization is sometimes subject to up to 50% inheritance tax. By taking out life insurance “over the cross” and through further design models, you avoid these legal consequences!

1. What is life insurance?

In principle, numerous policies fall under the umbrella term of “life insurance”, for example, also disability and accident policies. However, inheritance tax relevant is above all the so-called term life insurance. Upon the death of the insured person, it pays a contractually agreed sum, the so-called death benefit, to the person entitled to subscribe. If no deviating subscription right has been granted, the insurance benefit falls under the estate of the deceased.

Alternatively, life insurance is concluded as so-called capital policies. They include, for example, funds and thus serve to build up assets. At a fixed time, for example, when reaching 65. Then, the life of the accumulated property is paid. However, if the policyholder dies before reaching this time, another person receives the property or a so-called death benefit. This is regulated contractually, regularly in the form of a revocable or irrevocable subscription right according to § 159 VVG.

In principle, a distinction must be made between the terms “policy holder”, “insured person” and “beneficiary”.

1.1. policyholder

The policyholder is the person who took out life insurance. Your name is in the insurance contract as a contractual partner of the insurance company. The policyholder can in principle have the policy, for example adjust it, terminate it or make the contract free of contribution.

The policyholder is also obliged to pay contributions. Every life insurance policy provides monthly, quarterly or annual contributions. They are to be paid accordingly, which means that the insurer also makes use of the policyholder in the event of a default.

1.2. The insured person

Insured person is the person with whom the individual risk covering the life insurance is insured. It may, but does not have to, be identical to the policyholder.

For example, if life insurance provides when A dies, A is the insured person. The same applies if A is the one who reaches 65. the life of the life of the accumulated assets in the life insurance.

1.3. Life insurance subscriber

The person entitled to receive life insurance may also differ from the policyholder and the insured person. The person entitled to receive the corresponding benefit upon occurrence of the insurance.

Example: A and B are married. A has taken out life insurance and B has been appointed as the beneficiary. If A reaches the age of 65, the accumulated capital is paid to B. A does not receive any benefit, but is a policyholder and insured person.

2.Inheritance tax problems in life insurance with death benefit

If life insurance pays a death benefit, it makes a significant difference how the contract was concluded during your lifetime. If a policyholder, insured person and subscriber is a person, the insurance benefit on death falls under the estate of the deceased. Subsequently, the capital is transferred to the heir as part of the universal succession and is subject to inheritance and gift tax.

The same applies even if the insured person has used another person as a subscriber. In the event of payment of the insurance benefit, an acquisition of property upon death shall be fictitious (§ 3 (1) no. 4 ErbStG). It is subject to inheritance tax in the classical sense.

3rd benefit of life insurance “over the cross”

The disadvantages of life insurance with death benefit mentioned in the previous paragraph can be circumvented by a design “over and above”. It does not comply with the taxation provisions of the Inheritance and Gift Tax Act and thus enables a tax-neutral payment of the respective sum for the legal successor.

In the case of life insurance “over the cross”, the beneficiary is also a policyholder. Both people take out life insurance and insure the life of the other person.

Example: A and B are married. A concludes a life insurance policy in which she uses B as an insured person. B proceeds in the same way, but uses A as an insured person. As a result, the spouses are insured “about the cross”, so that there is no “contract concluded by the deceased” within the meaning of § 3 (1) no. 4 ErbStG.