Loans with a long repayment period involve a certain risk. A mortgage with a repayment term of 30 years, for example. Unfortunately, there is always a chance that you will fall ill or die before the end date. In that case, the loan will of course continue and the repayments for your partner or heirs may turn out to be too high. To avoid this, the debt balance insurance is a good solution. This insurance is not required by law, but a lender has the right to demand this before approving your file.
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What is a debt balance insurance?
A debt balance insurance is a life insurance policy, linked to a credit. This insurance follows the repayment pattern of the loan and provides, in the event of death of the insured, the balance that has yet to be paid back. The company actually settles the debt of the insured person that he or she still has to the lender in the event of death. In order to be eligible for a debt balance insurance, various factors are often looked at, such as age, duration of the loan, the number of premiums, gender, smoking behavior and the number of medical antecedents. The insurance company will ascertain the health of the insured in advance. After all, the chance is smaller that someone dies when they are still healthy.
A little remark. It makes no sense to insure the same risk several times. Anyone who already has a life insurance policy and thinks that the sum that is associated with this will be sufficient to repay the (mortgage) credit may perhaps decide not to take out debt insurance.
How much insure?
You can insure different amounts with a debt balance insurance . Together with your partner you can each cover half of the loan amount. In this case, however, the payment for the surviving partner can be (too) high on death. After all, all costs end up on the partner’s shoulders. You can also both take full cover for the borrowed capital: a coverage of 200%. However, the premiums are a lot higher. A middle way is a total coverage, between 100% and 200%, of the borrowed capital. The premiums remain so limited and you are assured that your partner will also be able to repay the remaining amount.
Different payment terms
During the term of the debt balance insurance contract, the capital to be paid gradually decreases. Just like the outstanding balance of the loan. That is why different payment terms can be used.
- First of all, there is the one-time deposit of the premium. The advantage is that this is cheaper. The disadvantage is that you immediately have to pay several thousand euros. In addition, you lose the sum, if your credit is reviewed after a few years, or if you can repay early.
- The second option is the annual premium for 2/3 of the term. This premium will then remain the same and you can spread the payment over several years.
- The third option is the annual adjustment of the premium, whereby the premium is spread over the entire term. Unfortunately, this is more expensive.
It is best to decide on the basis of your own personal situation.