An Introduction the 4 Social Securities in Germany
Every person who earns money in Germany has to pay taxes and contribute to social security. Depending on where you’re originally from, you may be used to this system, but let’s break it down anyway.
In Germany, we have four different social securities:
- Health Insurance—Krankenversicherung
- Long-term care insurance— Pflegeversicherung
- Pension insurance—Rentenversicherung
Your specific responsibilities depend on your role within your company or work. In the eyes of the government, you are either:
- A) a freelancer who is self-employed, or
- B) you own a corporation/GmbH (read more about that here)
If you fall into Category B and are the director of that corporate entity, you pay taxes as if you are an employee of that company. HOWEVER. For social security reasons, you are treated as if you are a self-employed freelancer.
It might not sound like it makes a ton of sense, but trust me, this is a good thing.
Now let’s look at the types of insurance that fall under the social security umbrella and whether or not you need them.
Health insurance (Krankenversicherung)
You are required to have health insurance in Germany, but the type of insurance you receive and the cost can vary monthly.
There are two types of health insurance:
There are pros and cons for each (though there’s one I recommend over the other, so keep reading…).
In both cases, you have to pay monthly contributions. For state-run health insurance, those contributions depend on your income. This percentage can vary, but it’s usually 14.6% of your income—with a cap at €52,200—paid on a monthly basis.
So if you make €52,200, divided by 12, that’s €4,350 per month. 14.6% of that (roughly €635) is your monthly healthcare contribution.
If you don’t want to go with the state’s health insurance and instead opt for private health insurance, your income doesn’t matter. With private health insurance, your contribution depends on your health condition rather than your paycheck.
This has advantages and disadvantages.
When you’re young and healthy, but have a higher income, it’s good to go with a private insurance since it’s often cheaper.
If you’re older and without an income, but have lots of health problems, you’d want to go with state insurance to avoid those higher contributions.
But here’s the catch (and why I recommend state insurance over private insurance)…
You can switch from state insurance to private insurance at any time. But it’s very difficult to switch from private insurance to state insurance. Once you choose private insurance, you’re stuck.
So think twice before you choose private health insurance. If you’re young, healthy and make good money, eat the cost of higher contributions now, but reap the benefits when you’re older and need to see the doctor more often.
Long-term care insurance (Pflegeversicherung)
Long-term care insurance is essentially a piece of our health insurance here in Germany. It provides different types of care in the case of severe accidents, disabilities, etc. In the event that you needed to use your long-term care insurance, you would be covered for things like inpatient services, at-home caregivers, and nursing homes.
Like health insurance, this social security contribution is also mandatory and also based on a percentage of your income. In this case, you’d pay 2.55%. So in our example above, where you were making €52,200, you’d pay €635 per month for health insurance, plus an extra €110 for long-term care insurance. That’s a monthly contribution of roughly €745.
Unemployment insurance is mandatory for all employees in Germany except for those of you who are self-employed.
While the first two insurances we talked about our mandatory, you can take or leave this one. It costs around €90 per month and gives you a payout if you’ve been contributing for at least 12 months. In my opinion, it’s not all that important. Out of all my clients, not a single one has opted for unemployment insurance, so it’s not common for those of you who are self-employed or run your own businesses.
(If you do decide to contribute to unemployment, go to the unemployment office—Agentur für Arbeit or Arbeitsamt—and ask to be insured against unemployment.)
Pension insurance (Rentenversicherung)
And finally, let’s talk about pension. Most self-employed people do not need pension insurance. This social security contribution really only applies to a few professions, like craftsman, contractors, and teachers.
In every case, you should check with your local Rentenversicherung (Germany’s pension insurance providers). There’s one in every city. If you’re exempt from paying contributions, go here to get written confirmation. The department is called “Clearingstelle”. Even though it’s uncommon to need pension insurance, the government is very strict about this.
Either way, when you start your self-employment, don’t start a contract with a new pension insurance until you’ve checked with your local office. Then focus on building liquidity and getting your business up and running. Only at that point do you need to think about things like pension insurance. I recommend
To wrap up…
Out of these 4 insurance options, the only ones you have to take care of are: #1 and #2. Once you’ve been in business for awhile, you can revisit #4.
Obviously, there are more types of insurance you can opt-in for, but they are not required. I always say that people should consider liability insurance, which is great for people who create products or offer services with high risk, like medical professionals or general contractors.
But PLEASE NOTE: This is all very different if you are the employee of a corporation. If that’s the case, you’ll be contributing to all four of these contributions, but your company will help take care of all that for you so you can sit back, relax and think about more important things!
Do you have any other questions about your social security options in Germany? Email email@example.com. Do you have questions about living #LifeInDüsseldorf? Feel free to send us an email with your question at firstname.lastname@example.org. If you have tips you’d like to share with others, we’re also accepting guest posts which include the author’s name, bio and photo.