If installment loans cannot be repaid due to illness, unemployment or death, there is a risk of damage to the creditworthiness and burdens for the relatives. Residual credit insurance companies promise to pay the loan installments in these cases. When is this installment loan protection worthwhile? What about the fine print in the insurance conditions? You can find out everything you need to know here!
Installment loan protection: protect relatives properly
According to the over-indebtedness statistics of the Federal Statistical Office from 2012, unemployment is the main cause of over-indebtedness with a share of 25.6%. Accordingly, 12.7% of cases can be attributed to illness or accident. It is obvious: If the income falls, the loan can no longer be serviced. Then there is the risk of extremely serious damage to creditworthiness and even bankruptcy. In the worst case, the relatives have to pay off the loan in the event of death. A residual credit insurance serves to reduce these risks.
Depending on the service package chosen, the policies insure against the risks of “no fault of your own”, “incapacity to work” and death, and individual providers also offer protection against divorce. If one of the insured risks arises, the insurance company continues to pay the current credit installments or replaces the entire outstanding balance in the event of death. The premiums for residual credit insurance are usually co-financed as a single premium and are then included in the monthly loan installment. However, banks do not include the premiums in the effective interest rate because they are two separate contracts. The conclusion of an installment credit protection must therefore never have an impact on the credit decision.
Interesting facts about residual credit insurance
Contributions can be relatively high, especially if protection against unemployment is concluded, and can exceed the actual financing costs. You should therefore carefully consider whether and to what extent insurance coverage is actually required. If you are only interested in securing survivors, simple risk life insurance can be the cheaper option of installment loan protection.
Most contracts are designed as group insurance, meaning that you are an insured person and not a policyholder. You can cancel residual credit insurance. In this case, you will get back the portion of the single premium that has been paid too much. However, the refund will be reduced by a cancellation fee. B. can be 10%.
Protection against installment credit: insure your own solvency
Residual credit insurance will continue to pay the current loan installments if you are no longer able to because of unemployment, illness or in the event of death. This protects you from serious damage to your credit rating. At the same time, the police relieve your relatives in the event of death. The insurance premium is charged as a single premium and co-financed in addition to the actual loan amount.
As a result, the monthly installments are slightly higher – simply display the monthly installments with an insurance premium when comparing loans. You are not necessarily bound by the policy until the end of the credit period: if you exercise your mostly monthly right of termination, you will receive a reimbursement of the one-off premium on a pro rata basis.