Be careful with residual debt insurance: expensive and often useless!

Be careful with residual debt insurance: expensive and often useless!

Experts strongly warn about the risks and high costs of residual debt insurance, which is often offered when taking out car loans. These insurance policies are intended to cover loan payments in the event of job loss, illness or death. However, consumer advocates are critical of the offers and point out that residual debt insurance is often expensive and does little. In particular, the high premiums are perceived as problematic because they increase significantly compared to the actual benefits.

An example illustrates the high additional costs: For a car loan of 18,000 euros with a term of eight years, the monthly installment without residual debt insurance would be 256.13 euros, resulting in a total cost of 6,588.33 euros. If residual debt insurance is added, the monthly rate increases to 330.46 euros, while the total costs add up to 13,724.16 euros. This means an additional charge of over 7,000 euros and a doubling of the effective annual interest rate from 8.49% to 16.89%, which increases skepticism about these insurance products. Ruhr24 reports that four key problems are associated with residual debt insurance.

Important problems with residual debt insurance

• Versteckte Kosten: Die Prämie wird häufig mit dem Kredit finanziert, was die Zinsen erhöht.
• Ausschlüsse: Viele Fälle sind aufgrund von Wartezeiten und bestimmten Klauseln nicht abgedeckt.
• Bereits bestehende Absicherungen: Kreditnehmer sind oft bereits durch andere Versicherungen abgesichert, wie zum Beispiel Lohnfortzahlungen oder Arbeitslosenversicherungen.
• Bessere Alternativen: Separate Versicherungen, wie Risikolebens- oder Berufsunfähigkeitsversicherungen, bieten meist ein besseres Preis-Leistungs-Verhältnis.

From January 2nd, 2025, residual debt insurance may only be offered one week after the loan agreement has been concluded, which represents further protection for consumers. Despite this regulation, attention is drawn to the frequent placement of residual debt insurance when taking out loans, where consumers are often put under pressure to choose these products.

Revocation and termination

Customers have the option to revoke the insurance within 14 days of taking it out without giving reasons. In the case of death benefit protection, this period is 30 days. It is also possible to cancel the insurance at a later date, but the loan agreement remains in effect regardless. Many consumers even receive part of the premium paid back if they cancel their residual debt insurance early. Consumer advice center emphasizes that existing insurance policies should be checked before taking out residual debt insurance in order to avoid unnecessary costs.

Overall, consumers should find out more about the actual conditions and benefits of residual debt insurance before deciding on such insurance. The combination of high costs, hidden fees and often inadequate protection does not necessarily indicate the need for residual debt insurance.