Credit insurance can quickly do the opposite of what it is supposed to do. If you complete a building loan with a bank, you usually get advice from your customer advisor about credit insurance. In many cases, however, this credit insurance is an unnecessary and expensive additional insurance on the way to your financing.
What is credit insurance?
First of all, the offer of credit insurance for your financing sounds tempting. This credit insurance is designed to protect the borrower in the event of an emergency. Such emergencies would then be incapacity for work or unemployment, so that your desired funding will not ruin you in an emergency. The credit insurance for your financing usually goes hand in hand with a residual debt insurance. Unlike credit insurance, residual debt insurance protects the survivors in the event of the borrower’s death.
Why is no credit insurance worthwhile?
Insurance in the event of disability or unemployment is expensive. At first glance, the borrower sees the additional costs that are not necessarily incurred. Only at the effective interest rate do you notice the additional cost of credit insurance. The effective interest rate skyrockets through the credit insurance – only then the additional costs become visible.
In addition, the credit insurance policies still have some catches. For example, many insurers only pay if unemployment occurs due to (business-related) termination. Even if this should be the case, insurers only pay the installments due for a short time, often only for 12 or 24 months. Such policies are almost everyday, because almost all banks conclude such clauses with insurance companies. Another fact that should not be overlooked is the deadline for unemployment. This means that if unemployment occurs too soon after the contract is signed, you may not see a cent, as it usually takes a certain amount of time (often up to 6 months) for this clause to come into force. Credit insurance has many catches, so it is hardly advisable for the borrower to take out one.
How can I protect myself anyway?
Many people are afraid when they take out funding that there will be an emergency where they cannot repay the installments. It even seems that because of this fear, many people shy away from their mortgage lending and do not complete it.
The fact is, you cannot protect yourself against all risks. However, it is important to understand that in the event of death, the survivors end up in financial ruin or that unemployment or incapacity leads to the same thing. A residual debt insurance, especially with construction finance, is definitely worth considering – just like occupational disability insurance, but insurance against unemployment is hardly. Rather, you should build on reserves to be able to pay the outstanding installments if you lose your job. It is important that if you want to take out residual debt insurance or another insurance for your loan, you should take out the policies separately and not take a package together. Anyone who insists on unemployment insurance should check the conditions very carefully and, if in doubt,