Every person who earns money in Germany has to pay taxes and contribute to social security/insurances. 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 (aka. insurances that you’ll likely need):
- Health Insurance—Krankenversicherung
- Long-term care insurance— Pflegeversicherung
- Unemployment—Arbeitslosenversicherung
- Pension insurance—Rentenversicherung (for a full guide on pension insurance, head here)
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:
- State-run (public)
- Private
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 every month.
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 private insurance since it’s often cheaper.
If you’re only planning on staying in Germany for a certain period of time (and not growing old here), you may find that private insurance is much cheaper and you’ll also receive much better care. In this case, private insurance is a great option!
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. You can also determine which public provider is best for you using a comparison tool.
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. Again, if you’re not planning on retiring in Germany, private insurance is a great option.
[box] Don’t forget, you can compare your public health insurance options and private health insurance options before making a decision![/box]
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. If you need 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 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.
In Germany, you also have the option of getting add-ons to your long term care insurance to make sure that you’re receiving the best possible care. You can compare your options online if you’d like.
Unemployment (Arbeitslosenversicherung)
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 are 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 the pension. Most self-employed people do not need pension insurance. This social security contribution only applies to a few professions, like craftsmen, contractors, and teachers.
In every case, you should check with your local Rentenversicherung (Germany’s pension insurance provider). 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 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 comparing the prices of pension insurance beforehand to get a better idea of what you’re looking at.
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 a while, you can revisit #4.
There are more types of insurance you can opt for, but they are not required. I always say that people should consider liability insurance and home contents, which is great for people who create products or offer services with high risks, like medical professionals or general contractors.
🥳 Also, for a limited time, GetSafe is offering all Life in Düsseldorf readers a 15 Euros bonus towards their content and/or liability insurance using this code: LIFEINGERMANY15
If you are an expat looking for liability insurance, I would recommend going with an English company like GetSafe – it’ll be much easier for you to understand what’s included and it can all be done online. If you don’t mind translating German, you can also compare all your options beforehand.
BUT PLEASE NOTE: This is all very different if you are an 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!
