In the German insurance industry, contracts are taken seriously. Policyholders and insurers alike are bound by legal frameworks that aim to create fairness, clarity, and continuity in coverage. However, under certain conditions in Germany, both parties can invoke a powerful provision known as the “special right of termination” (Sonderkündigungsrecht).
This right allows an insurance policy to be canceled outside the normal contract period. Understanding this mechanism is essential for anyone navigating insurance in Germany, especially expats who may not be familiar with local laws.
What Is the Special Right of Termination in Germany?
The special right of termination in Germany refers to a legal right granted to policyholders and insurance companies to cancel an insurance contract outside the usual annual termination deadline. This is governed by the German Insurance Contract Act (Versicherungsvertragsgesetz or VVG).
Under normal circumstances, an insurance contract can only be terminated with a notice period of one to three months before the end of the insurance year. However, the VVG outlines specific instances where early termination is legally permissible.
When Can the Special Right of Termination Be Used?
There are several conditions under which this special right of termination can be invoked in Germany. Let’s explore the most common scenarios:
1. After a Claim Is Settled or Denied
One of the most frequent situations where the special right is used is after a claim has been processed. If you file a claim and the insurer either settles or denies it, both parties are granted the right to terminate the contract.
- The policyholder must give notice within one month after receiving written notification of the claim decision.
- This right exists regardless of the outcome of the claim.
2. When Premiums Increase Without Enhancing Coverage
If an insurance company raises your premium without offering an equivalent improvement in your insurance coverage, you have the right to terminate the contract immediately.
- You typically have one month from the date the change was communicated to exercise this right.
3. After the Sale or Total Loss of the Insured Property
In the case of property or motor vehicle insurance, if the insured item is sold, scrapped, or destroyed, the contract can be terminated without adhering to the usual notice period.
- This applies to both parties.
- For example, if you sell your car, you can terminate your car insurance contract immediately.
4. Change of Ownership
If ownership of an insured item changes, the new owner inherits the existing insurance contract but also gains the right to terminate it within a month of the ownership transfer.
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How to Exercise the Special Right of Termination in Germany
Exercising your special right of termination is relatively straightforward. However, there are important rules to follow:
- Written Notice: Send a formal cancellation letter, either via registered mail or email, depending on your insurer’s policies.
- Include Key Information: Mention your policy number, personal details, and the reason for cancellation.
- Observe Deadlines: Most special rights of termination must be exercised within one month of the qualifying event.
Failing to adhere to these deadlines can result in your request being denied.
What Happens After the Termination of an Insurance Contract?
Once the termination notice is accepted, the insurance contract ends as of the date the notice was received or as stipulated in your cancellation letter. Any prepaid premiums are usually reimbursed on a pro-rata basis. Pro-rata basis simply means in proportionate division.
It’s essential to arrange new coverage immediately if the terminated policy is mandatory, such as liability or health insurance.
Insurance Contracts and German Law
To fully understand your rights, it’s important to consider the legal framework underpinning insurance in Germany. The German Insurance Contract Act (VVG) outlines the relationship between insurers and policyholders and sets the foundation for most insurance agreements.
Key Provisions in the VVG:
- Section 40: Governs the termination rights related to premium increases.
- Section 92: Deals with contract termination following an insured event.
- Section 96: Allows for termination upon sale or destruction of the insured object.
The VVG is designed to protect both sides by allowing flexibility when circumstances change unexpectedly.
Real-Life Example
Let’s consider a real example. A client of mine in Frankfurt had a home insurance policy for his apartment. After filing a claim for water damage, he was unhappy with how the insurer handled the process, even though the claim was partially paid. He exercised his special right of termination within 30 days and switched to another provider offering better service and a more comprehensive plan at a similar cost.
This change wouldn’t have been possible without the special right of termination. It gave him the power to opt out without waiting until the end of the contract year.
Why Is This Right Important?
The special right of termination is an important tool for consumer protection in Germany. It gives policyholders the ability to exit unsatisfactory agreements or adjust their coverage quickly in response to life changes.
Moreover, insurers are also protected. If a client becomes high-risk after a claim, the insurer may use this right to terminate the agreement.
Common Mistakes to Avoid When Exercising Special Right of Termination
Although the law is clear, many policyholders miss the opportunity to use the special right of termination because they overlook deadlines or fail to provide the correct documentation. Always:
- Review your contract terms
- Take note of correspondence dates
- Act quickly when circumstances change
Comparison Between Termination Rights and Regular Cancellation
| Feature | Regular Termination | Special Right of Termination |
| Notice Period | 1–3 months before contract end | Within 1 month of the event |
| Trigger | End of contract period | Claim settlement, premium hike, asset sale |
| Flexibility | Low | High |
| Legal Reference | VVG §8 | VVG §40, §92, §96 |
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Final Thoughts
The special right of termination in Germany is a crucial part of consumer-friendly insurance laws. It empowers policyholders to make timely changes to their contracts when major events occur. Whether you’re dealing with a premium hike, are dissatisfied with claim handling, or have sold your insured property, this legal provision gives you a way out.
As a licensed insurance broker with a decade of experience in Germany and prior years in Switzerland, I always advise my clients to keep detailed records of all correspondence with their insurers and consult with a professional when unsure about contract obligations.
For anyone living in Germany, especially expats, understanding your insurance rights isn’t just about saving money. It’s also about protecting your peace of mind.