If the policyholder dies but the insured person lives

With family pension insurance, it is common for the premium to be paid by someone other than the person whose pension the contract is for: a parent takes out a policy for an adult child, a spouse for their partner. As long as everything runs smoothly, this set-up is convenient – the tax credit is claimed from the policyholder's tax, and the savings build up towards the insured person's pension. The problem comes when the policyholder dies. At that point relatives typically believe either that the insurance will “pay out” something or, quite the opposite, that the contract has ended by itself. Neither is true. As a broker, I see that the biggest risk in this situation is not legal but practical: because the bank account is frozen, the premium goes unpaid, nobody reads the insurer's payment reminder, and savings built up over a decade end up in a state that is expensive to repair later. This article shows what happens to the contract, who has to do what, and how the entitlement to the tax credit stays in the family.

In short:

The policyholder's death is not an insured event: the pension insurance continues in the insured person's name on unchanged terms, but the policyholder's seat stays empty until someone takes it.
Under the life insurance rules of the Hungarian Civil Code (Ptk.), the insured person can step into the contract by a written declaration without the insurer's consent; if they do not, the policyholder's position forms part of the estate, and the notary's order distributing the estate (hagyatékátadó végzés) decides who becomes the policyholder.
The biggest risk is the premium: no transfer goes out from the frozen bank account, the payment reminder arrives at the deceased's address, and the contract may terminate or become paid-up – the right to the tax credit then belongs to the new policyholder, against their own tax.

The policyholder's death is not an insured event

Pension insurance covers the insured person's life and pension: the insurer pays if the insured person reaches the retirement age applicable when the contract was concluded, becomes entitled to a pension, suffers a health impairment of a specified degree, or dies. The policyholder – who pays the premium and decides on the contract – does not appear in this list. So if the parent or the spouse dies as policyholder, the insurer does not pay a death benefit, the contract does not expire, and it does not end by itself either: the savings, tied to the insured person's name, continue on unchanged terms – with the same retirement age as at conclusion, the same start date and the same tax credits received so far. What changes is the policyholder's seat: it becomes empty, and someone has to take it. The exact content of the roles is described in the article who is who in the contract, and the reasons for taking out a policy for a family member in the article on family policies.

Who takes the policyholder's place? Two routes

The first and simplest route is the insured person's. Under the life insurance rules of the Hungarian Civil Code (Ptk.), if the contract was not concluded by the insured person, the insured person may step into the contract by a written declaration addressed to the insurer, and the insurer's consent is not required for this; on stepping in, all the rights and obligations of the policyholder pass to the insured person – Hungarian life insurance policy conditions typically adopt this sentence word for word. In practice, this is typically a form at the insurer's customer service, with a copy of the death certificate – the insurer may also ask for further documents. In this way, the child or the spouse becomes the policyholder of their own pension insurance without waiting for the probate proceedings: they pay the premium, they decide on the contract, and they can make the tax credit declaration. The Ptk. also requires the insured person who steps in to reimburse the policyholder – or, after the policyholder's death, the heirs – for the costs spent on the contract, including the premiums paid; where the insured person is also the sole heir, this has no practical significance, but with several heirs it may become part of the settlement of the estate, so it is worth clarifying with the notary or a lawyer.

The second route is the heirs'. If the insured person does not step in, the policyholder's position – the contract as a right with monetary value – forms part of the estate under Hungarian policy conditions and case law, and passes to the heir under the notary's final order distributing the estate; in such cases insurers ask for a copy of the order and, until then, typically do not accept any substantive instruction on the contract (surrender, change of beneficiary, change of premium). The probate proceedings can take months, and the premium remains due in the meantime. An important limitation: under Hungarian policy conditions, the insured person cannot be replaced by this route either – even as policyholder, the heir continues to save only for the original insured person's pension, because the pension insurance benefit is tied to that person's pension.

Premium payment: where most contracts come to grief

After a death, the bank freezes the deceased's account, and standing orders and direct debits stop. The insurer does not know about this: the premium falls due and, if it does not arrive, under Section 6:449 of the Ptk. the insurer – warning of the consequences – calls on the policyholder in writing to pay, setting a 30-day grace period counted from the date the reminder is sent. If the grace period expires without payment, the contract terminates retroactively to the due date – within 120 days of the termination, however, the policyholder may request reinstatement in writing. The reminder letter, though, goes to the deceased's address and typically remains unopened. Life insurance has a mitigating feature: where the contract already has a surrender value, Hungarian policy conditions typically treat a missed regular premium not by terminating the contract but by converting it to a paid-up policy – the savings remain, no new premiums come in, but the charges keep running, and the opportunity for that year's tax credit is lost. Whether a particular contract terminates or becomes paid-up depends on the policy conditions and differs from insurer to insurer. The good news is that, in Hungarian practice, the premium can also be paid from another account, so the first step is for a family member to pay the premium due, quoting the policy number, while the question of the policyholder is being settled. The details of paid-up conversion, premium reduction and reinstatement are covered in the article on the contract's flexibility rules.

Tax credit: the right to claim it changes hands

Under Section 44/C of the Personal Income Tax Act (Szja tv.), the pension insurance declaration is made by the policyholder, from their own tax remaining after allowances, on the premium they paid as policyholder. This right is not lost with the policyholder's death but changes hands: from the time the insured person or the heir has become the policyholder, they can claim the credit on their own payments against their own personal income tax actually paid, up to 20% of the premium and no more than HUF 130,000 per year. The condition is that the new policyholder has tax to claim against: if a child under 25 who is just starting work or a mother exempt from personal income tax steps in, there will be no tax credit – this is detailed in the article on personal income tax exemption. What happens to the instruction on the deceased policyholder's payments in their final year depends on the tax authority's procedure for deceased taxpayers – it is not worth counting on this credit, and the question is best clarified with your accountant or with NAV (the Hungarian tax authority). Two things do not change, however: the amounts already credited in earlier years remain on the contract, and a change of policyholder is not in itself a surrender, so it does not trigger the repayment of the tax credits increased by 20%. That is triggered if the heirs decide to terminate the contract instead: then the full bill for surrender arrives, together with the tax on the gain.

Beneficiary and settings: what is worth reviewing

In family contracts, the policyholder is often also the death beneficiary: the parent named themselves on the child's contract. Under the Ptk.'s life insurance rule on beneficiaries, if the beneficiary dies before the insured event – here, the insured person's death – the designation lapses, and in the absence of a new designation the insured person's heir is the beneficiary: even then the amount is not part of the estate, but the insurer typically pays it out only once heir status is proven by the final order distributing the estate or by a certificate of inheritance, which means the payout waits for the probate proceedings. After stepping in, the new policyholder can therefore name a new beneficiary with the insured person's written consent; the designation procedure is described in the article on inheritance and beneficiary designation. It is worth reviewing the payment method (new account, new direct debit mandate) and the postal and e-mail addresses, because the insurer's notices – the renewal letter, the tax certificate – have so far gone to the deceased's contact details, as well as the size of the premium: a child just starting their career may not be able to carry the premium the parent took on in the same way, and a premium reduction is a better solution than skipped months.

What should the family do in the first weeks?

Notify the insurer of the policyholder's death with a copy of the death certificate, and ask for information on the status of the contract: premium due, payment method, arrears.
Pay the premium due, quoting the policy number, so that the reminder and the grace period do not even start.
If the insured person is an adult, submit the declaration of entry on the insurer's form; if they are a minor, their legal representative may make the declaration on their behalf, and the insurer may ask for further documents – this differs from insurer to insurer.
Clarify the beneficiary designation and the contact details, and then, with the accountant, the new policyholder's tax credit limit.
If the family does not want to continue the contract after all, ask the insurer for a calculation of the full consequences of surrender before signing anything – paid-up conversion is often a smaller loss.

If you let me know, I will help where I can; signing and handling the probate matters remain the family's responsibility.

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Sources

This article is for information purposes only; it contains general information and does not constitute an offer or insurance advice. The exact content of insurance contracts is defined by the insurers' terms and conditions in force. The inheritance of the policyholder's position and the insured person's entry into the contract are governed by the Hungarian Civil Code (Ptk.) and the insurer's policy conditions in force at the time; tax credit questions are best confirmed with your accountant or on the basis of guidance from NAV (the Hungarian tax authority).

The policyholder has died but the insured person is alive – what happens to the pension insurance?