Our lives can turn upside down in a single day, but most people aren’t prepared for it. You could be someone who earns a regular income, tracks your expenses, invests regularly, and saves for retirement. But what if one unfortunate day you met with an accident and can’t work anymore?

Or what if your child gets seriously sick and needs some expensive treatment? Many people avoid thinking about such situations because they believe it won’t happen to them. But we all know that truth is different. One unfortunate unexpected event is enough to wipe out all the careful financial planning you have been doing for years. And there is only one solution to survive such situations. Insurance Coverage.

But in today’s world, almost anything can be insured, from your mobile phone to your life. In Germany, you can even get an Elevator Insurance. For just twelve euros a year, this insurance covers you every time you get stuck in an elevator. But statistically, the average German only gets stuck in an elevator once every 102 years, so you’re unlikely to ever need it! So, how do we decide which ones are really required?

There’s an easy way to figure it out: Just think about the worst-case scenario that could happen if you didn’t have that insurance cover. How much would it cost you? If that amount is more than what you can possibly afford, then you likely need that insurance. But to make it easier for you, in this blog, I will give you a list of insurance that everyone must have and a few that can be ignored. I’ll be focusing on Germany since I live here, but the policies and principles I mention are applicable no matter where you are in the world.

So first, let’s talk about those insurances that are mandated by law in Germany and in most countries.

Mandatory

Health Insurance (Krankenversicherung)

Everyone, and I repeat, everyone should have health insurance or Krankenversicherung, even if it's not required by law. Health is the most important part of our life and it's important to protect it with the necessary insurance.

You have the option to choose between statutory or private health insurance depending on your situation. But for most people, statutory health insurance makes more sense if your government offers it. Because your premium is based on your income and in most cases, coverage extends to your family. But it may not include every possible treatment, so from time to time, you may still need to pay out of your own pocket.

On the other hand, private health insurance offers better and faster service. And the premium you pay depends on the level of benefits you choose. But note that, the premium can increase sharply as you age, so you should only opt for private insurance if you’re absolutely sure you can afford it long-term.

When it comes to health insurance, there is one thing that most people forget. It’s not enough that you alone are covered; You need to make sure that your immediate family and those who depend on you like your parents, and grandparents are also insured. Their health is just as important as yours, so make sure they’re protected too.

Motor vehicle Liability Insurance (Kfz-Versicherung)

In most countries, if you own a vehicle, you are required by law to have third-party insurance. This covers any damage you might cause to others in traffic. You can also choose to insure damages to your own vehicle partially or completely. It's not mandatory but it's recommended to do this based on the age of your car and your personal situation.

Statutory Pension Insurance (Rentenversicherung)

For most people, government pension insurance or Rentenversicherung is the backbone of their retirement planning. The state wants to make sure that you have a reliable income in old age and it's part of the social security system that the government provides.

So If you’re an employee, your contributions to pension insurance are automatically deducted from your salary every month, with your employer putting in half.

However, it’s important to note that the statutory pension isn’t often enough to maintain your standard of living in retirement. That’s why additional private pension plans make sense for many people.

This is also the case for self-employed individuals since the safety net of a government pension doesn't exist.

Optional

Those were the common mandatory insurances, but now let’s talk about the ones that may be optional in the eyes of the law, yet are still essential to have.

Personal Liability Insurance (Haftpflichtversicherung)

Imagine this: you drop a banana peel on the floor, someone slips on it, falls onto the road, hits a cyclist, who then collides with a car. The car turns suddenly, crashes into a bus, which then hits onto a building, and, the entire building collapses. Okay, I may have gone a bit too far, but you get the point. Accidents can happen anytime and on a really bad day, it can lead to someone getting seriously injured or even killed. Such situations can become incredibly expensive and can lead to a lifetime of debt for you.

This is why private liability insurance or Haftpflichtversicherung is one of the most important types of insurance you must have. It protects you from costs in cases where someone is injured due to your actions. Annual premiums are very low for such insurance, so do get one even if you are someone who always puts the banana peel in the bin.

Travel Health Insurance (Reise Krankenversicherung)

If you’re someone who takes at least one international trip a year, you should get an international travel health insurance or Reise Krankenversicherung. Because the risk of illness or injury is always higher when you’re on vacation. Your local health insurance may only partially cover these costs or might not cover them at all, depending on the country you’re visiting.

And trust me, these costs can add up quickly, especially if you need to be transported back home due to a serious health issue. Again the premiums here are very low, around 25-20 euros for a year. So do get one and enjoy your holiday without worrying about unexpected medical bills.

Legal Protection Insurance (Rechtsschutzversicherung)

Anyone who has been involved in a legal conflict knows that seeking justice has become increasingly expensive.

The costs for lawyers and court proceedings have risen dramatically in recent years. Whether it’s a disagreement with a landlord, an issue at work, or any other legal conflict, the expenses can quickly add up. That's where legal insurance or Rechtsschutzversicherung comes into the picture. However, unlike liability insurance, the premiums here can be high based on the coverage you need.

You have the option to reduce the cost by only opting for the protection that you really need. For example, if you are an employee, living in a rented apartment, and don’t drive to work, it makes sense to include coverage only for rental and employment law and skip protection for driving-related disputes.

Occupational Disability Insurance (Berufsunfähigkeitsversicherung)

You may be a carpenter, IT employee, or teacher, no matter your profession, there’s always a risk of becoming unable to work. Normally working individuals are covered by company accident insurance if they experience a mishap at work. However, this is limited to accidents that occur while you’re on the job. Also, the payouts are usually very low and cannot fully compensate for the loss of income.

That’s why everyone should consider having occupational disability insurance or Berufsunfähigkeitsversicherung. And the sooner you start, the better. Because when you’re young and generally in good health, your premiums will be lower.

Term Life Insurance (Lebensversicherung)

I don’t have life insurance, and it isn’t always necessary. However, if you have people in your life who depend on you financially—whether it’s your spouse, children, or other loved ones—then getting life insurance or Lebensversicherung is a must. It makes sure that if something happens to you, they can maintain their quality of life. And this becomes more important if you have significant financial obligations like a mortgage.

And just like with occupational disability insurance, the earlier you start one, the lower the premiums typically are. As your children grow older or your financial responsibilities decrease, you can consider reducing or even canceling the cover. Now there are different kinds of life insurance policies out there, so make sure you get term life insurance and not an endowment or capital life insurance.

Other Insurances

There are also other types of insurance you might need, depending on your personal situation. For example, if you own a property, it’s important to have building insurance or Hausratversicherung. If you open the newspaper or switch on the TV, not a day passes without hearing about a natural calamity happening somewhere. This insurance can protect your property from damage caused by storms, hail, fire, or lightning. Similarly, If you own a pet instead of a property, then a pet owner liability insurance or Tierhaftpflichtversicherung is the one you need.

Many dog owners believe their pets are harmless, but even the friendliest dogs can cause significant damage. And in almost all cases, the owner is always liable for any damage their pet causes, regardless of whether they did something wrong or not.

Now we have talked about many policies. Although these insurance contracts can give us a sense of security, they also come with a downside, cost. Every policy has premiums, and these can add up quickly. That’s why it’s important not to take out insurance casually and to avoid unnecessary ones. And two that you can often avoid are capital insurance policies and equipment insurance.

Unnecessary Insurances

Capital life insurance policies are insurance policies combined with investments. They were once a popular investment option, but they have become less attractive now due to low interest rates. It’s always a better idea to separate your investment and insurance needs rather than combining them into one product. The same applies to policies that cover insurance and pension payments. An ETF savings plan, combined with a payout plan when you retire, can provide you with more flexibility and better returns.

Equipment insurance is for insuring items like bicycles, cell phones, laptops, or glasses. These are generally only worthwhile if you’ve made an extremely expensive purchase. It’s definitely frustrating to have a broken cell phone, but replacing it usually won’t cause significant financial trouble. Similarly, other types of insurance like passenger accident insurance, and travel luggage insurance, are often unnecessary. For example, passengers in a car are usually covered by the driver’s auto insurance, and travel luggage insurance often comes with strict conditions and high costs, making it less useful.

I know it’s frustrating to pay for services that you’re not using, and insurance can very much feel that way. But you never know when you’ll need it, so it’s better to be prepared than to face total financial doom. I hope you found value in this blog. If so, do share it within your network for the people who would need this too.

Disclaimer: The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. It is important to do your own analysis before making any investment.

10 Insurance Policies Everyone Needs (And 4 You Don’t) | Germany