Residual debt insurance under fire: Consumer protection warns of traps!

Residual debt insurance under fire: Consumer protection warns of traps!

Residual debt insurance has been criticized for years, particularly because of its high costs and often unclear contract conditions. From January 2, 2025, a new regulation will come into force which states that a residual debt insurance contract may only be concluded one week after a loan agreement has been signed. This is intended to reduce the pressure on consumers to make hasty decisions. This change is supported by Section 7a Paragraph 5 of the Insurance Contract Act (VVG), which prohibits the insurer from concluding the contract before this deadline. InFranken reports that the former Federal Consumer Protection Minister Steffi Lemke pointed out the problems that are often overlooked when taking out these insurance policies.

Market investigations show serious deficiencies in the distribution of residual debt insurance. According to the Federal Financial Supervisory Authority (BaFin), over 6% of mystery shoppers felt pressured to take out such insurance. The Association of Insured Persons (BdV) recommends using needs-based term life insurance instead. In many cases, this alternative offers better protection at a lower cost. Gansel Rechtsanwälte added that customers can cancel the residual debt insurance at any time without giving reasons, which is an important option for many consumers.

Regulations and consumer rights

There are specific regulations for consumers regarding the termination and revocation of residual debt insurance. For contracts concluded between 2018 and the end of 2024, a new cancellation policy is required after one week, but this will no longer apply from January 2, 2025. In addition, terminations or revocations should always be sent by registered mail to ensure traceability.

BaFin has determined that around 8.2 million people in Germany have residual debt insurance. Nevertheless, take-up of services is very low; Only 0.06% of insured persons took advantage of these offers in 2015. Criticism of residual debt insurance is not only loud in Germany, but also in the United Kingdom, where many borrowers successfully claimed back premiums.

Costs and transparency

The costs of residual debt insurance are variable and depend on various factors, such as the loan amount, the contract term, the age of the borrower and the job situation. These factors can significantly increase the cost of borrowing. Various banks have begun to improve their transparency regarding the costs and conditions of residual debt insurance by showing the monthly loan installments both with and without the costs of the insurance.

However, it is also important to remember that many contracts contain numerous exclusion clauses that can limit the insurance payout in the event of a crisis. Therefore, consumers are well advised to fully inform themselves about their rights and, if necessary, seek legal advice to ensure they make the best possible decision for their financial security.