Oh, freelancers - you thought tax was intense to manage as a self-employed person! Well, what do you know about insurances in Germany? How many are there? What is what for and what do you have to pay? This, beyond tax, is one of the most confusing issues. Most people assume they just have to pay health insurance and that’s the end of the story. This is the time to remember: Germany gives people a great freedom and a chance to success on their own terms - but, there are lots of documents and hoops you need to go through first. What we can say here at Kontist - is that it is really worth it to get ahead and live that freelancer dream! In order for your self-employment to be as secure as possible, there are quite a few recommended insurance policies that protect you and your existence. Remember - something can always go wrong and it is better to be prepared - even if you are not a Boy Scout! There are two kinds of categories in these cases - some insurances which are voluntary and some insurances which a mandatory (this means, you simply are required by law to have this insurance!) Here it really depends on the needs of your business and how prepared you should be, which can also be dependent on the industry. A good rule of thumb, however, is that if you can afford it - get it!
The golden rule of being a business owner
Every freelancer or self-employed person is liable for damage caused by their work. At the end of the day, the price of being our own boss is being the only one responsible when things go wrong as a result of our work, because of our work or just in a general public liability sense. This is the golden rule - you are responsible, so really ask yourself, could I afford NOT to have insurance. It also depends on what industry you work in… because of course, it does!
But! There is a silver lining to the golden rule: all of these expenses are deductible in your tax filings!
Let’s start with key Insurance Number 1 of 2!
Professional indemnity insurance: covers personal injury, damage to property and pecuniary loss to third parties. In other countries, it may be known as ‘Standard Third-Party Insurance’. Professional indemnity insurance as it is here is the, indispensable protection against various occupational financial risks - a protection for you as a freelancer as a result of liability obligations towards third parties.
Also worth noting: if you employ employees in your self-employment, they must be included in the insurance.
Let’s delve a little deeper…
From this overarching point, it is also possible to distinguish between personal injury, property damage and financial loss.
Personal injury occurs when a person experiences physical injury or harm as a result of your business or because of your business, or in the space where your business is conducted. A great example: a customer cuts their hand on a door or window. Without insurance, you could face very high claims for damages or compensation, as well as income foregone payments and medical expenses. Well, these claims will occur anyway, but the point would remain that the insurance will bear the burden of these costs. Of course, we are all inclined to believe no one could be at harm as a result of our business or our activities - but, that could feel like a major risk you cannot reverse!
Property Damage is nearly as straightforward as it sounds. Basically, if you or anyone working on behalf of your business destroys property of others while conducting business. Of course, this is a nuanced topic in the eyes of the German law with a myriad of characteristics and types. It can be highly recommended to speak with a broker about this insurance: really make the assessment on how your activities could result in property damage and set up a plan based on the level of risk and of course, on the advice of the specialist.
Financial Loss is again somehow obvious, but is exclusively for when a third party experiences financial loss caused by the work of the self-employed person, freelancer or associated staff.
It is also important to be able to differentiate between the two types of insurances with regard to the cover sums to be agreed: In the case of public liability insurance, personal injury and property damage have a higher cover than for financial losses. In the case of professional indemnity insurance, on the other hand, the coverage for financial losses is much higher.
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And now for insurance 2 of 2!
Professional and public liability insurance
A professional indemnity insurance is something like a liability insurance for the self-employed, who are in the broadest sense advisory active (ie advice to customers, clients and clients). It protects you against the claims of third parties that have come to harm or admonish you. If this allegation cannot be validly proved or is not correct, you can use this insurance to defend the allegations and related claims of third parties. In the case of justified claims, the insurance company assumes the damage according to the coverage amount stipulated in the contract. This could be quite similar to terms you know from back home, in other countries outside the EU, so here you can consider it the classic professional liability insurance. This comes into play when a third party suffers financial damage as a result of your activity. For some occupations (such as those dealing primarily with the property of third parties), such as lawyers, accountants, notaries, insurance intermediaries and tax consultants, you are simply required to have professional liability insurance because of the high professional risk, and this is mandated by the law. High financial loss can come about not just in cases of negligence or otherwise. Without this insurance, these professional groups are not allowed to work at all. Similarly, these sorts of cases are highly applicable to doctors, pharmacists, naturopaths or any field where damages due to possible advice and/or treatment errors are more likely, not just subject to the losses of income. However, this may not apply to you! It could be good to know in the case of bad advice, however, let’s keep going!
Public Liability Insurance covers other risks: It protects you from damage that third parties might suffer as a result of your business activities. Damage caused by your employees during their working hours is also covered.
Perhaps, these insurances can seem quite similar - but they are not, there are different kinds of protections and this is the most important thing to remember. But for the most part, it is highly recommended to combine both insurances. One of the most valuable things about insurance is that it can be tailored for the most part to suit your individual use case and case needs - which is the least handy it could be, naturally!
Bonus Insurance Round: Legal Expense Coverage Insurance
Legal expense insurance is absolutely not mandatory, but, for freelancers or self-employed persons, I could not be more forthright about the benefits of this insurance. We all want to be relaxed knowing we do the right thing by our clients and they do the right thing by us. Sadly, business does not always go this way, so what is the best thing to do in this case? Legal Expenses Insurance, most certainly.
Now, there are indeed two types of legal expenses insurance:
1) Private sector: disputes with neighbors, family matters and similar.
2) Professional activity legal insurance: fee disputes, difficulties with clients, unfulfilled, financial claims and similar. In the following text, we are going to focus on professional activity legal insurance - but, regardless, always be on good terms with the neighbour!
In the context of freelancer/self-employed life legal insurance is essentially classified as commercial insurance. There are some first steps - of course, defining by industry/trade. It can be especially recommended regardless of industry but if you provide services. For example, when you are offering services or taking/providing supplies there is often a contract involved. It is in this case that likely legal insurance is a good idea. This extends to financial disputes and thereafter. Now, in terms of cost, it would not be advisable to give a price range in this blog post - due to the fact there are so many interchangeable factors - and it really is on a case by case basis. For example, are you working as a freelancer (that is for you alone)? If you have a business or a company, how big is your business and how many employees are you employing? So, here are some last key things to keep in mind when it comes to legal insurance:
It is worth keeping in mind that not all insurance providers cover self-employment. Some insurers have good offers for self-employed, but often they are not so consistent across the market offerings. One thing worth noting in when running through your feasible options is that some companies will not allow you to select your own legal counsel in the event of dispute. Be very mindful of this especially if it is common in your field of work to need specialised legal counsel.
If you have freelance employees or employees, a legal expenses insurance can be quite important. In disputes concerning the employment relationship, terminations or due warnings you will be protected and protected in any legal disputes. A knowledge of the law will help guide you as you set up your employment formations, but, disputes can arise even if you have followed the protocol - so that extra protection can help clean up employee-related matters quite quickly.
Sometimes legal protection can be valuable to also deal with disputes that may arise with the Finanzamt. In this case, you can fully protect yourself (and any language barriers) to ensure a smooth and easy resolution without breaking the wallet!
As always, we can only recommend that you spend as much time as possible educating yourself on the possibilities when it comes to insurance. There are brokers available to give direct advice and remember - these advices should be tailored to suit you and your unique circumstances. There are so many decisions required when it comes to starting/founding/establishing your business and insurance is just as important as, well, all of them! Indeed, it can be the one that gives you little to no incentive to invest in as you are starting out, but it can be the one investment that saves your business, income and/or employees in case you are faced with unique challenges in your business.