Can an insurance policy be deducted from taxes? An explanation.

Many people wonder if insurance can be deducted from taxes. The answer is: Yes, absolutely! This article explains which insurances are deductible and what amounts can be saved as a result.

Which insurances can be deducted from taxes

The primary function of insurance is to provide protection in the event of an unforeseen and unfortunate event. Many insurances concluded in Germany can be deducted in the tax return. For this purpose, the insurance policies must be listed as the following costs in the tax return:

• Pension provision (special),
• Income-related,
• Pension provision costs.

The final amount that can be obtained by deducting insurances from taxes varies depending on the classification.

Insurance as pension provision costs (special expenses)

Most of the insurances concluded can be deducted as pension provision costs under the so-called special expenses. It is important to note that this is only possible up to an amount of 1,900 euros (for employees) and 2,800 euros (for self-employed). Examples of insurances as pension provision costs include:

• Statutory health insurance,
• Long-term care insurance,
• Unemployment insurance,
• Liability insurance,
• Disability insurance (also at the workplace),
• Term life insurance.

When filling out the tax return, it should be noted whether the contributions to health insurance, unemployment, and long-term care insurance are within the maximum amount. If this is exceeded, such insurances cannot be deducted from taxes as part of the special expenses.

Insurances as income-related costs

Insurances associated with professional risks can be deducted as business expenses. There is no set maximum limit here, so the entire amount can be deducted from taxes. Which insurances are considered income-related costs?

• Accident insurance.
• Professional liability insurance.
• Legal protection insurance.

If the flat rate for expenses due to income of one thousand euros is reached, each additional euro will reduce the final tax burden. The costs for work-related insurances can be claimed as business expenses (for employees) or operating expenses (for self-employed).

Insurance as pension provision costs

Pension insurance is of great importance with regard to the future and plays a crucial role in the tax return. Pension expenses can be entered on the first page of the so-called form for pension expenses. What should be known about pension insurance in 2021?

• 92% of the contributions paid count as special expenses. This percentage refers to the maximum amount. The employer’s share to the statutory pension insurance is also included.
• By 2025, the percentage will increase by two percentage points annually.
• Single individuals can expect a maximum amount of 25,787 euros.
• For married couples or those in a registered partnership, the amount is doubled.

Tax refund of insurance contributions — what cannot be deducted

There are insurances that do not cause business expenses and therefore cannot be deducted from the tax return. These include, among others:

• Property insurance (protects objects or inventory)
• Supplementary health insurance,
• Supplementary long-term care insurance
• Comprehensive insurance (but can be deducted by the self-employed).

When deducting insurances from taxes, the applicable rule must be observed: Living expenses that inevitably reduce economic performance are referred to by the legislator as extraordinary burdens. The situation is different with property insurance – these cannot be avoided and do not provide future security or are not necessary for the exercise of a profession.

Possibility of tax deduction of insurances — summary

The free, intuitive, and completely secure tool Taxando for tax returns enables the hassle-free deduction of insurances from taxes. No special tax knowledge is required – a phone with an installed app is sufficient.