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Residual debt insurance: sensible or only expensive?
Residual debt insurance: sensible or only expensive?
Anonim

Anyone who builds or buys a house secures financing with capital and real estate. However, if the main earner fails, residual debt insurance can protect. To what extent your age or your lifestyle plays a role in relation to the final contribution amount can be found here:

Table of contents Table of contents Residual debt insurance: sensible or only expensive?

  • What is residual debt insurance?
  • What does a residual debt insurance cost?
  • Does residual debt insurance make sense?
  • Who has to take out residual debt insurance? Is it mandatory?
  • Cancellation of the residual debt insurance: is that possible?
  • Are there alternatives to residual debt insurance?
  • Double protection as a couple - is it worth it?
  • Can I deduct contributions to residual debt insurance from tax?
  • Do insurance companies need your customers to share in the surpluses they generate?

Table of contents Table of contents Residual debt insurance: sensible or only expensive?

  • What is residual debt insurance?
  • What does a residual debt insurance cost?
  • Does residual debt insurance make sense?
  • Who has to take out residual debt insurance? Is it mandatory?
  • Cancellation of the residual debt insurance: is that possible?
  • Are there alternatives to residual debt insurance?
  • Double protection as a couple - is it worth it?
  • Can I deduct contributions to residual debt insurance from tax?
  • Do insurance companies need your customers to share in the surpluses they generate?

When a loan is taken out, there are usually very substantial financial obligations. With an installment loan (for example for a trip), this can be a few thousand euros, with a building loan it can also be several tens of thousands or even hundreds of thousands of euros.

Responsible borrowers clarify exactly when and how they will repay this loan. Nevertheless, planning can become obsolete due to special living conditions. And, for example, owning your own home is at risk sooner than you realize. The residual debt insurance was created for these cases.

What is residual debt insurance?

Residual debt insurance is a variant of risk life insurance and protects borrowers or their relatives from being unable to service credit installments. At the same time, it prevents lenders from missing the borrower's agreed rates. Residual debt insurance is also known as residual credit insurance, credit life insurance or installment protection insurance. She steps in in contractually stipulated cases and pays the open installments of the loan. As a rule, residual debt insurance is taken out as risk life insurance. A combination with additional insurance is also conceivable.

What does residual debt insurance cover?

These benefits are conceivable with residual debt insurance:

  • death
  • illness
  • unemployment
  • Disability
  • incapacity for work
  • accident
  • divorce

When does the residual debt insurance pay?

The residual debt insurance covers the costs whenever one of the cases covered by the policy occurs. The risks most often insured are death, disability and unemployment of the borrower. However, there should be an urgent review of the cases in which benefits from residual debt insurance can be expected and, if necessary, when. Because numerous insurers include agreements in the contract clauses that define waiting periods or waiting times.

Restschuldversicherung springt ein, wenn Kreditraten nicht mehr bedient werden können
Restschuldversicherung springt ein, wenn Kreditraten nicht mehr bedient werden können

If the credit rates can no longer be paid due to, for example, unemployment, disability or death, the residual debt insurance will step in and protect borrowers and lenders.

Photo: iStock / Ja'Crispy

What does a residual debt insurance cost?

There is no general answer to the question of how much residual debt insurance costs because the contribution to be paid depends on several factors:

  • Amount of the loan
  • Loan term
  • Scope of services
  • Insured person's creditworthiness
  • Characteristics of the insured person

The insurer takes into account all factors that are available to him and help him to estimate the likelihood of a claim in the insured sum to be paid. He can also calculate the sums he would then have to pay for.

In addition to the amount of the loan and its term, the scope of the residual debt insurance benefits also plays a role. The borrower's creditworthiness is also used to realistically classify the risk.

The amount of the residual credit insurance contribution also depends on the policyholder's gender, age, profession and lifestyle. Women generally pay less than men, younger people less than older people, and non-smokers less than smokers. Likewise, people who do a job in which they are hardly at risk of unemployment are less asked to pay.

What is the contribution to residual debt insurance?

A residual debt insurance is usually not paid in monthly installments, but with a one-off payment when the installment loan or the building loan is taken out.

Taking out such insurance can drive up credit costs considerably: Additional costs of ten or even 20 percent of the loan amount are not uncommon. If a loan of EUR 10, 000 was taken out for the holiday trip, EUR 1, 000 to EUR 2, 000 (10 or 20 percent) of the loan costs will be paid solely by the installment protection insurance. With a construction cost loan of more than 400, 000 euros, additional costs of 40, 000 euros (with an exemplary ten percent) would quickly come to future property owners.

Kosten einer Restschuldversicherung hängen von vielen Faktoren ab
Kosten einer Restschuldversicherung hängen von vielen Faktoren ab

The cost of a residual debt insurance depends not only on the amount of the loan, the duration of the loan and the scope of benefits, but also on the age, profession, gender and lifestyle of the borrower. In principle, they can range between ten to 20 percent of the loan amount.

Photo: iStock / oatawa

Does residual debt insurance make sense?

In spite of the considerable costs, which depend on the sum insured, of a residual debt insurance, it can make sense in certain cases. Because - above all, people who have taken out a building loan should be aware of this: if the monthly loan installments can no longer be paid, the worst case is that the property will be foreclosed.

In these cases, taking out residual debt insurance can definitely pay off:

  • The loan amount is very high.
  • The loan runs for a very long time.

Both points usually apply to construction finance. Even if the repayment plan has been carefully thought through and would basically have to be fulfilled - a lot can happen over the long loan period of 20, 30 or even 40 years that messes up these plans. If the main earner falls ill, becomes unemployed, unable to work or even dies, the surviving dependents are often no longer able to service the credit installments. You then lose not only a loved one, but also your home. In such a case, taking out residual debt insurance can make sense.

And insurance can also prove to be advisable in a further situation: If, for example, insufficient equity has been built up to allow construction finance to be approved, taking out residual debt insurance can provide the bank with security and serve as a pro-argument. Sometimes a loan commitment is only taken out by taking out residual debt insurance, so that the desired property can still be acquired.

What are the advantages and disadvantages of residual debt insurance?

The residual debt insurance has a rather bad reputation due to the high premium premiums, but it also offers advantages. To decide whether the insurance is a sensible hedge, the following overview helps:

Advantages of residual debt insurance Disadvantages of residual debt insurance
Protection against payment defaults High costs
Protection of the loan / home

in the event of unexpected life events

if applicable contractually stipulated

Performance restrictions, Waiting and waiting times

Appreciation of creditworthiness

Who has to take out residual debt insurance? Is it mandatory?

It is not compulsory to take out residual debt insurance when taking out a loan; every borrower - regardless of whether the borrowed money is used for vacation, a new car or a property - can decide for themselves whether they want insurance protection.

In some cases (see above), taking out residual debt insurance can help to get a loan in the first place. Some banks require completion when taking out a home loan.

A precise assessment of the benefits and the given risks is therefore absolutely worthwhile. If the cost of the policy is not proportionate to the risk, it may not be necessary. As a rule of thumb, the longer the loan runs and the higher the loan amount, the more likely it is that the insurance costs will be in a reasonable relationship.

Restschuldversicherung schützt Eigenheim
Restschuldversicherung schützt Eigenheim

Residual debt insurance is expensive, but it can be worthwhile in certain circumstances. In addition to upgrading the creditworthiness of the borrower, it protects against loss of home in the event of unexpected life events.

Photo: iSock / AlexRaths

Cancellation of the residual debt insurance: is that possible?

Under certain circumstances, the residual debt insurance taken out is no longer required. This is the case, for example, if the loan was paid off prematurely or the loan is rescheduled. Borrowers and policyholders then have two options to cancel:

  1. Special notice
  2. Ordinary termination

Special cancellation of the residual debt insurance

If a residual debt insurance was also taken out together with the loan contract, you can cancel it if the loan is rescheduled or repaid prematurely. Because then the insurance reason no longer exists and the insurance becomes obsolete. It is then possible to exercise a special right of termination and to request the insurance company to reimburse the premiums for the remaining term.

Ordinary cancellation of the residual debt insurance

It is different if the loan is still running. Then it must be checked whether the insurance contract provides for ordinary termination during the contract period. If this is the case, the residual debt insurance can be terminated in compliance with the individual notice period (usually this is two weeks at the end of the month). The unused portion of the risk contribution can then be reclaimed. However, a certain amount may be deducted from this as a "cancellation deduction".

Termination in the case of a group insurance contract

For some providers of residual debt insurance, the borrower is not the contracting party of the insurance. Rather, it is the bank policyholder who grants the loan. The borrower is then only considered an "insured person" who is covered by group insurance. These policyholders used to be worse off, but since February 23, 2018 this has no longer been the case: “Insured persons” have since Paragraph 7d of the VVG equates to policyholders. This means that you also have the right to cancel or terminate the insurance contract.

Kündigung einer Restschuldversicherung durch ordentliche Kündigung oder Sonderkündigung
Kündigung einer Restschuldversicherung durch ordentliche Kündigung oder Sonderkündigung

If the loan was paid off early and the residual debt insurance is no longer required, the policyholder has the option of ordinary termination or special termination.

Photo: iStock / city councilor

Are there alternatives to residual debt insurance?

Before taking out residual debt insurance, it should be checked exactly which insurance the borrower or his family already has. In this way, double insurance of the same risk can be avoided.

For example, there is already one

  • Accident insurance,
  • Disability insurance or
  • Life insurance,

it should be checked whether and to what extent a residual debt insurance complements these insurance policies in a meaningful way. If, for example, the benefits from the existing policies (risk life insurance, accident insurance and occupational disability insurance) were not sufficient to continue servicing the loan and repaying the remaining debt, credit life insurance would make sense.

The advantage of these three insurances taken out independently of the loan is that the expected benefits do not depend on the loan amount. They can therefore be an extremely sensible alternative for residual debt insurance, which in the event of an emergency protects relatives against financial bottlenecks - and in some cases at significantly lower costs.

Double protection as a couple - is it worth it?

As a couple, it is advisable that both spouses take out residual debt insurance. Because one spouse dies, the other is initially on his own and often faces major financial challenges due to the remaining debt. The widowed partner may no longer be able to do all of his work, which in turn leads to reduced income or even unemployment. However, if the deceased has taken out residual debt insurance, this can intervene and ensure that the bereaved can at least keep their own home.

Can I deduct contributions to residual debt insurance from tax?

Contributions paid for residual debt insurance are considered special expenses and can be claimed in the income tax return. The lump-sum payment in the event of death is still tax-free.

Do insurance companies need your customers to share in the surpluses they generate?

Yes, insurance companies must allow their customers to share in the surpluses they generate. But be careful, the insurance companies calculate the premiums carefully. Some providers also offset the surpluses with the contributions immediately. This means that you pay lower rates than specified from the start. For insurance cover with a death bonus, the surpluses serve to increase the benefit in the event of death. For example, if the death bonus is 100 percent, taking out an insurance sum of 45, 000 euros is enough to secure insurance protection of 90, 000 euros.

Nadine Kleber

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