New rules for residual debt insurance: Consumers beware!

New rules for residual debt insurance: Consumers beware!

From January 2, 2025, new regulations for residual debt insurance will come into force, which will affect many consumers. Such an insurance contract may only be concluded one week after the loan agreement has been signed. This measure is intended to prevent consumers from being put under pressure to agree to residual debt insurance when taking out a loan. This change is part of Section 7a Paragraph 5 of the Insurance Contract Act (VVG), which stipulates that the policyholder's contractual declaration may not be made before the loan agreement during this period, reported In Franconia.

Federal Consumer Protection Minister Steffi Lemke points out that residual debt insurance was often offered as a package with loan agreements, which often took consumers by surprise. This is confirmed by market studies that reveal significant deficiencies in the distribution of such insurance. Many borrowers stated that they had the impression that they would not be able to get any loans without residual debt insurance.

Critical aspects of residual debt insurance

A study by the Federal Financial Supervisory Authority (BaFin) reveals that more than 6% of mystery shoppers felt pressured to take out residual debt insurance. The Association of Insured Persons (BdV) generally advises against residual debt insurance and classifies it as overpriced and incomplete in insurance coverage. Consumers often already have statutory protection that takes effect in the event of unemployment or incapacity.

Alternative insurance such as term life insurance and occupational disability insurance are considered by experts to be much more useful. These also offer a needs-based solution for securing large-volume financing. Demand for residual debt insurance remains high, particularly when financing installment loans, car loans and purchases of equipment or furniture.

Important provisions regarding termination

Consumers who have already taken out residual debt insurance should be aware of the options for termination. This is usually possible, but deadlines and separate termination points must be observed. A revocation is possible within 14 days of conclusion of the contract; in the case of death insurance, a deadline of 30 days applies. For contracts concluded between 2018 and the end of 2024, a new cancellation policy is required. From 2025 this requirement will no longer be necessary.

It is recommended that cancellations or revocations be sent by registered mail to ensure that the applications are delivered correctly. In the event of a revocation, the insurer must reimburse the premiums for the period following receipt of the revocation, provided the policyholder has been properly informed of his right of revocation.

Before taking out new residual debt insurance, consumers should carefully check their existing insurance policies, as many of them already offer sufficient coverage. The consumer advice centers also recommend that you obtain comprehensive information before signing the contract in order to avoid unpleasant surprises. Further information about the disadvantages of residual debt insurance can be found on the website Consumer advice center.