With the decision to take out a loan, the borrower also undertakes to make regular repayments. However, this regularity is threatened by external, unforeseeable factors such as illness, unemployment, divorce or even death. If you want to mitigate these risks, the loan with residual debt insurance is ideal.
What is residual debt insurance?
The residual debt insurance is taken out separately from the loan agreement. It is intended to secure the repayment of the loan in emergencies. This insurance is often used by the lending bank in combination with the loan, but it is also possible to choose this insurance from another provider. The contribution is paid according to the type of loan.
A one-off amount is due for installment loans and annuity loans; for other types of credit, the contribution is recalculated monthly in accordance with the remaining amount. Banks’ residual debt insurance policies are often included in the effective interest rate. However, this is not mandatory and only increases the interest rate many times over!
When does the credit insurance take effect?
In the case of classic loans with residual debt insurance, the latter applies to death and incapacity to work. However, modern variants now also include serious illness and unemployment and offer assistance to return the borrower to work. In the event of death, the loan amount is covered by the insurance, in the event of unemployment, the insurance usually continues to repay for 12 months.
When does credit with residual debt insurance make sense?
If a borrower already has appropriate insurance, for example life or death insurance, this can be easily assigned to the bank for an emergency.
In the case of smaller loans with short terms, it should also be considered whether insurance should be taken out because it represents a noticeable additional financial burden.
However, the situation is different with larger financing projects, as is the case with home purchase and construction financing. In order to relieve the family in an emergency, borrowers should definitely insure the loan with residual debt insurance.
The comparison of financial service providers is not only worthwhile for borrowing, but also for taking out residual debt insurance. The costs are often significantly different, but the services and periods of insurance offered must also be checked.