Loss-of-Function Insurance (Grundfähigkeitsversicherung)
Loss-of-function insurance pays an annuity if the insured person permanently loses defined basic physical or mental abilities, regardless of occupation.
Comparison profile
- Trigger
- Fixed sum insured
- Insured interest
- The insured's basic physical or mental abilities, independent of occupation, whose permanent loss undermines their general capacity to lead an independent life and earn income.
- Rating basis
- Age at inception, Desired pension amount, Health declaration (typically simplified compared with disability income insurance), Occupation (lesser weighting than disability income insurance), Selected abilities and severity grading
- Typical limits
- The pension amount is individually agreed and, in some tariffs, graded by the percentage of ability lost for partial impairment.
- Typical deductibles
- A qualifying or waiting period applies in some tariffs, requiring a minimum expected duration of the impairment (e.g. six months) before the pension is paid.
- Target segments
- Manual and physically demanding occupations, Individuals declined or unfavourably rated for disability income insurance, Private individuals seeking simpler underwriting
Insured events
- Permanent loss of sight
- Permanent loss of hearing or speech
- Permanent loss of mobility (walking)
- Permanent loss of grip or manual dexterity
- Permanent loss of normal mental capacity
Key exclusions
- Self-inflicted loss of ability or attempted suicide
- War and warlike events
- Pre-existing conditions not disclosed at underwriting
- Loss of ability from undeclared hazardous activities
- Temporary or reversible impairments
Concept
Loss-of-function insurance is an income replacement insurance that pays an agreed annuity if the insured person permanently loses, wholly or partly, one or more basic physical or mental abilities specifically defined in the contract (such as seeing, hearing, speaking, walking, gripping, or normal mental capacity).
Distinction from Disability Income Insurance
Unlike disability income insurance, which is based on the specific ability to carry out the occupation last practiced, loss-of-function insurance assesses exclusively the loss of clearly defined, objectively verifiable basic abilities, regardless of the occupation practiced, which regularly makes claims assessment simpler and more comprehensible than the often complex assessment of disability.
Target Group and Market Relevance
Loss-of-function insurance is considered an alternative or supplement to disability income insurance, particularly for occupational groups whose activity insurers classify as a hard-to-assess or elevated risk (such as physically demanding occupations), since disability income insurance is often available to these groups only on unfavorable terms or not at all, while loss-of-function insurance, due to its more objective benefit definition, is often more accessible.
Comparison and delineation
Loss-of-function insurance is the principal alternative to occupational disability insurance: both pay an agreed pension on permanent incapacity, but loss-of-function insurance triggers on the objective, easily verifiable loss of defined basic abilities rather than on the harder-to-assess inability to continue a specific occupation. It is generally cheaper and easier to underwrite for occupational disability insurance’s target clientele, but pays out in fewer scenarios, since many occupationally disabling conditions (for example chronic pain or mental illness) do not involve the loss of a defined basic ability.