There are many banks that offer residual debt insurance when you request a loan. A residual debt insurance offers protection against unemployment, disability and death. However, a loan approval must not be made dependent on the conclusion of residual debt insurance. Many borrowers have recognized that a loan without residual debt insurance is much cheaper.
The importance of residual debt insurance
In general, a loan approval is not dependent on residual debt insurance. The cost driver residual debt insurance is a reason for many banks to offer customers insurance. But today’s generation of customers have clearly recognized that a loan without residual debt insurance is much cheaper.
Nevertheless, the importance of this insurance must not be dismissed. Because it offers protection against unemployment, serious illness and in the event of death. However, in order for the borrower to accept this protection, he has to dig deep into his pocket. Older borrowers in particular feel this, because the premiums are dependent on the age of the borrower.
When banks create a loan offer, they often automatically include residual debt insurance. This is not immediately apparent, since the cost of the insurance does not show up at the borrowing rate. Even in the installment to be paid, the customer will not notice that a residual debt insurance is integrated in the loan agreement. Banks offer residual debt insurance as a security package. The point is that the borrower gets more collateral.
German customers in particular place great value on security and therefore agree to insurance. It must be assumed that most customers already have cover for the aforementioned risks. Many have occupational disability insurance, accident insurance or life insurance. If banks do not grant a loan without residual debt insurance, then these costs must be shown with the interest. This was dictated by a new consumer credit directive. There is no need to do so if a person interested in credit so wishes.
The customer should know that the more risks are covered by the residual debt insurance, the more expensive the loan without residual debt insurance. Then the question arises: is a loan without residual debt insurance actually useful?
The initial situation
If you consider the importance of residual debt insurance, you come to the conclusion that credit protection can be useful not only for the lender but also for the borrower. Who wants to be in default of payment if suddenly there is unemployment or a serious illness results in disability. In the worst case, the death can occur. If an insurance policy has been taken out, it will then come forward and pay for the installments.
The insurance can be tiered:
– Only in the event of death
– Protection against inability to work and death
– Credit insurance with unemployment, incapacity to work and death
The lender prefers to see the latter protection. The reason is not only a perfect hedge for many cases, but the banks also collect high commissions here. The customer can assume that full protection is very expensive.
If the borrower already has a life insurance policy, he no longer needs to take out any credit for the loan without residual debt insurance. Risk life insurance is a clear winner when it comes to hedging. Anyone who has such insurance no longer needs a residual debt insurance.
The bank insists on residual debt insurance and now?
It is the banks that propose residual debt insurance. The customer should assume that insurance companies do not have the best conditions with the lender. The lender may provide a cheap loan, but the bank is not the right contact for cheap insurance. If the customer opts for residual debt insurance, he should look for a neutral insurance provider.
A loan without residual debt insurance is always cheaper. The customer should know that the insurance premiums will be added to the loan amount. This not only makes the loan more expensive, but the borrower also pays interest on the insurance. If insurance seems sensible, a neutral insurance company should always be sought.
On the other hand, there are concerns that if banks doubt a customer’s ability to pay back, they will insist on taking out such insurance. Even if the customer’s creditworthiness is not sufficient, a loan without residual debt insurance is often rejected. If the bank does not refuse to make its claim, the customer ultimately has to look for a form of financing.
Examine the facts carefully
Real estate financing, for example, is never concluded without risk life insurance. If you accept a loan with a longer term, you should still consider whether a residual debt insurance is not useful. The cost of the insurance is in the annual percentage rate. The residual debt insurance is expensive and there are also exclusions. For example, there is no health check; if an insured event occurs because of an illness, the insurance company will often not pay if the illness exists before the insurance is taken out.
The regulations should be checked when taking out insurance. For example, the insurance company often does not pay if unemployment was due or if contributions have already been paid for six months. A loan without residual debt insurance should always be selected if the loan has a short term. However, it should be considered in the case of construction financing. Here, work is carried out with a long term and if a serious illness occurs, this can still mean financial ruin.
For example, those who have occupational disability insurance and accident insurance do not need any other insurance cover. Because residual debt insurance can be such a large cost factor that the loan becomes so expensive that it can no longer be paid. The consumer credit directive states that since 2010 banks have been required to disclose the cost of this insurance in the annual percentage rate.
The process of lending is shown in such a way that a credit request automatically has an offer of residual debt insurance. The customer should check this and have the residual debt insurance rejected and deleted if necessary. If the lender does not allow this, the customer should look for another lender. There he can possibly take out the loan without residual debt insurance. There are many banks that offer a loan even without residual debt insurance.