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Germany is one of the safest environments to start your business. But it comes up with a list of insurance costs which mostly your organization cannot avoid. In this guide about businesses' insurances, we would analyze most of the mandatory and voluntary insurances for your businesses.
The right insurance policy will not let your company go into insolvency in case your company faces compensation claims. Image source:unsplash.com
German-English insurances dictionary:
Vermögenschadenhaftpflichtversicherung - loss liability insurance
Inhaltsversicherung - business asset protection insurance
Betriebsunterbrechungsversicherung - business non-operating insurance
Unfallversicherung - accident insurance
Gewerberechtversicherung - legal insurance
Krankenversicherung - health insurance
Arbeitslosenversicherung - unemployment insurance
Pflegeversicherung - long-term care insurance
Rentenversicherung - retirement insurance
Einbruchversicherung - theft insurance
Cyber-Versicherung - cybercrime insurance
Flottenversicherung - fleet insurance
Managerhaftpflicht - D&O liability insurance
General insurances for businesses
The first type of insurance is general worldwide; it is the loss liability insurance. As an entrepreneur, you are liable to pay for all damage caused by you or your employees. It is not just about paying off caused physical damage to the client or client's property. Even IT malfunction connected to your software is subject to compensation claims. For example, unauthorized third-party access to secret information leads to a potential loss of income for the client. In this case, the claims could easily reach 25,000 EUR. Without liability insurance, this mistake can be fatal for your business. We also recommend spending extra time on calculating the right coverage sum. A thorough financial risk analysis results in the calculation of the hypothetical damage you could cause your clients. It can be relatively small for startups – up to 150000 EUR, but for some types of businesses like tax consultants or lawyers, it is required by law to reach 1,000,000 EUR.
The second insurance type is business asset protection. All inventory you may have for your business purposes falls under this insurance type. In case of flood, fire, storm, electric surge, robbery, or any other equipment destruction, you have a right to get compensation. It applies to all installations and facilities. An important notion is that you cannot just terminate working agreements with your employees if they have no working equipment, so the correct insurance should include the costs of potential loss from non-operating.
The third compulsory insurance is required to pay your dispute and court processing costs. It is called legal insurance. Even on a small company level, disputing is indeed expensive. In each case, you must pay a solicitor for their services. In addition to that, you face various disbursements. It includes search fees, fees to obtain official reports, i.e., expert reports or photocopying fees. Without this insurance, significant risk implied that you stop your business even before you eventually win the dispute case.
So, even if you have not started to produce goods, provide services, or employ people yet – you are already obliged to get your business activities protected.
Strictly regulated Insurances. Protect yourself and your employees
Today we write about the most strictly regulated insurances in Germany – health insurance, retirement insurance, elderly care insurance, and total permanent disability insurance.
The German competitive taxation system results in one of the best social security systems in the world. Gif source:giphy.com
Health insurance is the most crucial insurance, and most citizens have state insurances. Public state insurance covers most of your needs, and it is designed so that each social group could afford adequate healthcare. The monthly fee is high – 14.6% plus (possible) 1.1% on average of your gross salary. The highest insurance premium is paid when a monthly income of 4,688 EUR is reached (relevant figures for 2020). Once you reach this threshold – it does not increase anymore. Employees have to pay only 50% of the insurance premium and the whole premium of an extra 1.1% on average of their salary, and the employer handles the other half. Unfortunately, self-employed have to pay the entire amount. To be precise, the lowest possible contribution to statutory health insurance for freelancers with an income between 1,061.67 EUR and 4,687.50 EUR per month is 199.06 EUR per month plus additional contribution (on average, 1.1% calculated from social security contribution ceiling). And it only happens in case freelancer does not claim benefits from health insurance!
The good part is that as self-employed, you are not limited only to state insurance brokers. What is the benefit of being privately secured? Individual healthcare plans, possible lower fees not directly connected to the income level, different perks. For instance, a private insurance company could pay your travel costs or new glasses. If you do not want to transfer from state to private insurance, it is still fine. There are also benefits available for both state and private insurances. The right way of gaining benefits is to complete regular health checks and collect bonuses. Most health insurance companies have a bonus system.
As for the other insurances of social security, major insurances are unemployment insurance and statutory long-term care insurance. These insurances guarantee your employees an income during unemployment and primary long-term care in case of disabilities. It is important to note that it is mandatory and both, employer and employee, pay different percentages of income. Another notion is that to be eligible for compensations, formal criteria imply. For example, to be eligible to claim governmental unemployment benefits, an employee must contribute for at least 12 months. Young professionals with less than 5 years of contributions will not receive any help because of insufficient prior collected points.
Another part of social security covers employee accidents in the workplace, occupational illnesses, or accidents happened on the commute to or from the employer. This statutory accident insurance is compulsory for employers and free for employees. The good news is that those for statutory accident insurance are very low compared to other social insurance premiums. Averaged over many years, the premium for employers has been in the region of 1.3 %.
The corporate retirement scheme will pay off with loyal employees and a reputation as a social-oriented business. Image source:unsplash.com
Most relevant information on retirement plans could be found in English on German pension insurance website. It is also mandatory to participate in the state pension program; however, you could start a corporate retirement program or even individual pension investments. It is still not a common practice for startups but quite common for enterprises to enroll their employees into corporate elderly care programs. For yourself, as a founder, it is another headache at the start because you could select your private elderly care program. On the other side, you have the opportunity to gain the maximum benefit from a personalized plan.
Supplementary protection insurances for business
The last category of insurances is supplementary, yet you should not underestimate that these cases would never happen.
First of all, you could insure the whole corporate fleet with fleet insurance. It means that you can get a tailor-made scheme for any number of cars rather than insuring them individually. The motor vehicle liability insurance is fundamental and could be extended into partly- or full-coverage comprehensive insurance. This insurance is most beneficial in damage caused by collision with an animal, stealing a corporate vehicle, or even self-inflicted accident. For these cases, the insurance company would compensate the damage and reimburse the replacement costs.
Of course, not only vehicles could be insured from steal. Regular theft insurance is already a part of the mandatory business insurance. It usually would not cover costs from shoplifting and stealing by your employees. It makes more sense to concentrate on prevention methods such as video security or security guards. Another hot topic for 2020 is the difficulty of damage costs reimbursement caused by cybercrimes and digital identity theft. General advice - use 2-factor authentication everywhere; it is a good start. Extra cybercrime insurance would be beneficial for these matters.
According to Statista, 75% of responding companies in Germany encountered incidents concerning digital security. Gif source:giphy.com
D&O (directors & officers) liability insurance covers the cost of compensation claims made against your company's management. The difference from corporate liability comes in the sense that here claims are made against upper management individuals, not the whole corporation. The scope of claims is broad, from employees' discrimination claims to failure to act in the company's best interest from shareholders. The breach of European legislation by the top management is indeed a part of this liability insurance.
Any insurance mentioned in this text could be extended further. For instance, statutory long-term care insurance could be extended with occupational disability insurance. This extension will help your employees to save most of their potential disability pension if they don't meet statutory criteria. A broad category that could be customized for your business is the group of accident insurances, which can cover compensation claims on all sorts of accidents. Accident insurance policies might include accidents during business travels worldwide, group accidents, and even protection from the accidents in your employees' private life.
To conclude, a broad corporate insurance policy is essential for new businesses in Germany. That's a backup for your employees, banks, investors, and potential business partners. It increases the overall attractiveness of your business. And in modern practice, it is not reasonable to rely only on mandatory insurances but purchase extra insurance smart based on the organization's financial and non-financial risk analysis.