The residual debt insurance – securing financing


Securing financing – residual debt insurance

Taking out a loan to purchase a property should not be done lightly. Thinking about the worst-case scenario. The repayment of installments can only be guaranteed if sufficient income is available. But what happens if the borrower becomes unemployed or dies?. That in these cases, repayment of loan installments can continue is highly unlikely. Instead of accepting the risk of falling into debt, it is advisable to take out an insurance policy at the same time as taking out the loan to cover precisely these events. The residual debt insurance is a credit insurance, which is recommended by many banks directly with the credit application. But here, too, a comparison of residual debt insurance is recommended.

Particularly in the case of a high loan amount, the conclusion of residual debt insurance can only be recommended, as is the case with a real estate loan. The repayment of the loan amount takes a long time and the monthly burden of the household through the real estate loan is quite high. If there is no income from work, the repayment is in danger. Many banks therefore also require the credit insurance for a positive credit application. To ensure that the insurance does not become a cost trap, the various types of insurance should be known in advance, so that a decision can be made as to which type is the right one according to one's own individual requirements.

The term life insurance in real estate financing

Term life insurance provides coverage in the event of the death of the insured person. The surviving dependents can thus receive the insured sum with which the real estate financing can also be serviced. The loss of payment can thus be avoided.

Term life insurance is not only considered good coverage for a loan, but can be used in a special form specifically for the real estate loan only. It makes insurance less expensive than other forms of insurance. A sinking credit life insurance must be agreed upon conclusion of the contract, which can be based on the residual loan amount. The more payments have already been made for the real estate financing, the lower the sum insured will also be.

It should be noted that term life insurance only provides coverage in the event of death. It does not cover loss of earnings due to unemployment or health impairments, such as after an accident. This means that not all risks can be covered that could result in a cancellation by the bank in the case of a real estate loan.

Residual debt insurance for real estate financing

Since residual debt insurance offers a wider range of coverage. The offer also includes, on the one hand, that the policyholder can insure himself alone against the event of death. But the credit default insurance is also conceivable with regard to unemployment through no fault of one's own and also in the case of health impairments, such as after an accident. As a rule, these areas of coverage can be combined with each other in a modular fashion, whereby death insurance represents the basic coverage and must not be left out of the residual debt insurance policies. The other areas of coverage can then be selected according to requirements.

In the event of the death of the insured, the insurance company pays the real estate loan directly and in full to the credit institution. For other coverage, the insurance company provides for payments to be made monthly, so that when the cause for an insurance payment ceases to exist, it can be terminated.

It should be noted that residual debt insurance has a waiting period, and in the event of unemployment or incapacity for work, for example, the insurance company will only pay the insurance benefit after three months.

Financing – recognizing the pitfalls of insurance

It is always advisable to have credit insurance. Nevertheless, the insurance contract should not be signed without further ado.

It should be noted that insurance offered directly with the loan agreement makes the real estate loan more expensive. The costs for en insurance cover must be paid to the provider in advance. This can be co-financed through the real estate loan. What is certainly a good option at first glance, since no upfront costs are incurred, can also turn out to be a cost-intensive choice. If the loan amount increases, there will also be a change in the interest rate, so that the costs will continue to rise. The consequence is either higher monthly installments or a longer loan term. Especially when the insurance can be paid off through the real estate financing, the cost increase due to more interest is a pitfall of the insurance companies. A cost trap through a residual debt insurance cannot always be excluded, so that the costs for the insurance should be exactly known and recognized.

It is also important to study the exact terms of the contract. Sometimes include exclusions for which the insurance company will not make any payments. So the age of the borrower can be a cause of this. Borrowers of an advanced age in particular cannot take advantage of the benefits if health impairments arise. Insurance companies also make life difficult for insureds with individual pre-existing conditions.Here, too, it should be noted that individual companies make exclusions here in particular, and thus an insurance benefit that is actually secure can sometimes not be obtained after all.

Term life insurance or residual debt insurance for real estate financing:

Taking out insurance to secure a loan is always a very good choice. When choosing between term life insurance and residual debt insurance, it is important to be clear about the scope of the policy. The residual debt insurance offers the more comprehensive protection here. If you pay attention to the costs – not least by comparing residual debt insurance – you will have taken the best possible precautions in the event of a serious incident. So take out a residual debt insurance policy and use it to secure the real estate financing!

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