YEL insurance affects your parental allowance and provides future security for your family

Self-employed persons planning to start a family are often uncertain about how the different family-related benefits paid to entrepreneurs by Kela are calculated. Some entrepreneurs may be concerned about the security provided by the YEL insurance to their families in the event of their death. For entrepreneurs, both parental allowances and survivors’ pensions are calculated on the basis of the YEL income, that is, the income reported and confirmed for their YEL insurance policy. For this reason, it is vital to maintain the YEL income at an appropriate level throughout one’s career.

Use our YEL calculator to estimate how the YEL income amount will affect your pension, social security and insurance contributions >

The many-sided functions of YEL insurance are discussed by Elo’s specialists in a series of articles. This third article focuses on the impacts of the YEL income on the benefits for families as well as survivors’ pensions.

Parental allowances are based on the YEL income

“Self-employed persons often assume that the pay they take out from their business will serve as the basis for calculating the benefits for families paid by Kela, but that is not the case. Similar to sickness allowance, the parental allowance payable to entrepreneurs is calculated on the basis of their confirmed YEL income”, explains Kristiina Sandén, Business Affairs Specialist at Elo.

Kela determines the amount of the maternity, special maternity, paternity, parental and partial parental allowances on the basis of the annual income. The annual income is calculated for a reference period of 12 calendar months prior to the calendar month that precedes the start of the entitlement to the benefit. For entrepreneurs, the YEL income serves as the basis for calculating the annual income. If the amount of YEL income has changed during the 12-month-period in question, the average YEL income over the period will be used. If, in addition to the entrepreneurial activities, the self-employed person is engaged in paid work, the annual income will include both the YEL income and the salary/wages from the employment. The annual income does not include the pay actually received from one’s own company, or the amount of earned income from business activities.

“The YEL income should be in line with the entrepreneur’s actual work input. If any major changes occur in the work input, the YEL income should be adjusted accordingly. It is not possible to adjust the YEL income retrospectively, so it is recommended to inform about any changes in entrepreneurial activities without delay”, Sandén advises.

If an entrepreneur continues working during the parental leave, it may be necessary to keep the YEL insurance policy valid. If the lower limit of YEL income (8,063.57 euro in 2021) is exceeded, the entrepreneur is required to keep the YEL insurance policy in force. If, however, the work input is less or the work does not continue at all, it is possible to interrupt the YEL insurance policy for the duration of family leaves.

Survivors’ pension provides security for the widow and minor children

The amount of survivors’ pension is based on the pension that the deceased entrepreneur received or would have received in the form of disability pension on the date of death. The number of beneficiaries has an effect on the amount of survivors’ pension. If there are no minor children, the survivors’ pension payable to surviving spouse may be decreased. The maximum amount of a surviving spouse’s pension is one half of the deceased entrepreneur’s pension. If the beneficiaries include the widow and two children, the survivors’ pension is equal to the deceased entrepreneur’s pension.

For example, if an entrepreneur who was born in 1962 and had worked since the age of 21 with an annual YEL income of 36,000 euro (or monthly income of 3,000 euro) died at the age of 55, the survivors’ pension paid to the widow would be about 1,000 euro per month. If the YEL income had been equal to the minimum limit of 8,063.57 euro per year (or 660 euro per month), the surviving spouse’s pension would be about 219 euro per month. These sums are estimates only and they do not take into account, for example, index increases, decreases due to the life expectancy coefficient, or the effects of the surviving spouse’s own income.

“Sometimes entrepreneurs ask if it would be more profitable to have a minimum YEL income and earn pension security through other investments. However, when comparing the amount of survivors’ pension with the proceeds from other investments, one should bear in mind that survivors’ pensions will be paid to the widows for the rest of their lives, up to decades. For example, if survivors’ pension is paid at 1,000 euro per month over the course of 20 years, the total sum will amount to 240,000 euro, even without the increasing effect of indexes”, explains Satu Saulivaara, Senior Pension Advisor at Elo.

The easiest way to update your YEL income is to use Elo’s Online Service. You can also call Elo’s Customer Service to adjust your YEL income. It is advisable to update the YEL income without delay since no changes can be done retrospectively.

Use our YEL calculator to estimate how the YEL income amount will affect your parental allowance, pension, social security and insurance contributions >