Residual debt insurance: How to effectively protect yourself from trouble!

Residual debt insurance: How to effectively protect yourself from trouble!

From January 2, 2025, new regulations for taking out residual debt insurance will come into force, which are intended to better protect consumers. Loud In Franconia Such an insurance contract may now only be concluded one week after the loan agreement has been signed. This is part of the legal provisions in Section 7a Paragraph 5 of the Insurance Contract Act (VVG).

Federal Consumer Protection Minister Steffi Lemke emphasizes that residual debt insurance was often offered as a package with loan agreements, which took many consumers by surprise and caused them to hastily take out this insurance. A market study by BaFin, published on December 29, 2023, shows that over 6% of mystery shoppers felt pressured to take out residual debt insurance. These deficiencies in sales highlight the problems associated with taking out such insurance.

Focus on consumer safety

The Association of Insured People (BdV) speaks out against residual debt insurance and describes it as overpriced and fraught with gaps in insurance coverage. Instead, the BdV recommends taking out needs-based term life insurance to provide protection for large-volume financing. Many consumers could already be protected by existing legal protections in the event of unemployment or incapacity to work.

The upcoming regulations also affect the options for terminating these insurance policies. Consumers can cancel residual debt insurance, but must keep contractual deadlines in mind. To be on the safe side legally, experts recommend sending cancellations or revocations by registered mail. For contracts concluded between 2018 and the end of 2024, renewed information about the right of withdrawal is necessary, which will no longer be necessary from January 2, 2025.

Tax aspects and alternatives

Another advantage of many insurance policies is the ability to deduct them from taxes as special expenses. Consumers should also find out about alternatives to residual debt insurance. In addition to term life insurance and occupational disability insurance, there are various options that may be more cost-effective and effective in protecting yourself against financial risks.

In view of the new legal regulations and the recommendations of consumer advocates, it is crucial for borrowers to obtain comprehensive information before taking out residual debt insurance and to consider the best options for financial protection. Interested readers can find further details and information about the market investigation in BaFin's full report BaFin.