Is a residual debt insurance worthwhile?

Frequently, a borrower has the opportunity to take out residual debt insurance. Whether such a credit insurance pays depends on the individual case. 

A residual debt insurance takes effect if the borrower, due to certain events, is no longer able to pay the installments. For families, it is often useful to protect them from eventualities.

Credit insurance takes effect in an emergency


A residual debt insurance jumps in when the borrower dies, for example. Otherwise, his survivors would have to take over the loan and pay the installments. Even with longer incapacity for work or unemployment, a credit insurance can protect the person concerned and prevent it from being financially overburdened by the loan installments. There are different models and the borrower can decide whether he wants to cover himself only for the death or for other eventualities.

What the residual debt insurance takes over


If a borrower dies, the insurance company takes over the complete loan. In the event of incapacity for work, the installments are taken over for the period of sick leave. In the case of unemployment, the period in which credit insurance is provided is often limited. Mostly the limit is 12, 18 or 24 months.

Anyone who quits his job or is self-employed terminated and therefore without employment, must still pay his own loan installments. Even if an inability to work is caused by illnesses that were already known at the time the insurance was taken out, this does not materialize.

Useful for families and bad credit


A residual debt insurance is particularly useful for a loan with a high loan amount, which is repaid over a long period. Especially for families, it can be worthwhile, so that in case of death no major financial difficulties arise. Even if the creditworthiness of the applicant leaves something to be desired, a residual debt insurance can make sense.

The bank can make the conclusion of such insurance a condition for the loan , if it considers the risk of a default high. The residual debt insurance can thus enable the granting of a loan that the borrower would otherwise not have received.

Not necessary with small credit and other hedging


By contrast, credit insurance is usually not required for small loans that are repaid quickly. Even those who have generally already secured very well may be able to do without: a term life insurance, a disability insurance and accident insurance also serve the purpose of insuring the insured for unforeseen blows.

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