Key takeaways
- Residual debt insurance covers your loan payments if you cannot pay them as you become unemployed, unable to work due to illness, or in the event of death.
- Residual debt insurance isn’t worth it as it’s expensive and doesn’t offer the right performance.
- You can take life and occupational disability insurance instead.
This is how you do it
- Tell the bank or broker you don’t want to take residual debt insurance. If they force you to take one, talk to their supervisor or submit a complaint online at Verbraucherzentrale or Bafin.
- Check the total loan costs instead of the interest rate while comparing loan offers.
- Compare loans from different banks on comparison portals: Smava*, Finanzcheck*, Check24*, and Verivox*.
Table of Contents
What is residual debt insurance (Restschuldversicherung)?
Residual debt insurance covers your loan installments if you cannot pay as
- you become unemployed, which is not your fault
- you are unable to work due to an accident or illness
- unexpected death.
As good as it may sound, residual debt insurance is not worth it. It’s expensive, and most claims end up in disputes.
Is residual debt insurance worth it in Germany?
No, residual debt insurance isn’t worth it for the following reasons.
- It’s expensive
- The insurance contract has many clauses that limit the insurance benefits and the scenarios in which you can claim it.
- Most claims end up in disputes.
- You usually buy the insurance from the bank together with the loan. Thus, you don’t have the option to compare and find the right policy for you.
As per the data from the German federal government, the residual debt insurance companies covered the loan installment of only 0.3% of the contracts [2].
Why do banks and loan consultants pressure you to take residual debt insurance?
Residual debt insurance (Restschuldversicherung) is a very profitable business for banks. According to Bafin (the banking supervisory authority), banks receive more than 50% of the insurance premium as commission.
So, you can imagine why your bank consultant is so keen on selling you residual debt insurance.
Is taking residual debt insurance compulsory?
No, residual debt insurance is not required to take out a loan in Germany. If your bank consultant or broker says otherwise, get it in writing or talk to their supervisor.
Forcing clients to take residual debt insurance is very common when you are taking a mortgage in Germany. The insurance makes the mortgage very costly.
You may not notice the cost if you look at the interst rate only. You must check the total cost, before signing the contract.
If they still force you to get it, file a complaint with Verbraucherzentrale. Verbraucherzentrale is a central customer advisory in Germany that helps resolve consumer complaints.
You can also submit an official complaint with Bafin. Bafin is the banking supervisory authority in Germany.
New regulations regarding residual debt insurance
- The commission on residual debt insurance is capped at 2.5% of the loan amount.
- NEW: As per the Future Financing Act, you can take out residual debt insurance seven days after taking out the loan. This way, it’s clear to the borrower that taking out residual debt insurance has nothing to do with the loan and its conditions.
The NEW regulation will come into force on January 1, 2025. If you get residual debt insurance before 7 days of taking out the loan, the insurance contract is void, and you get the money back.
Do you need residual debt insurance in Germany?
First of all, residual debt insurance isn’t worth it. Moreover, you don’t need it if you already have occupational disability insurance, term life insurance, or statutory unemployment insurance.
How much does residual debt insurance in Germany cost?
The cost of residual debt insurance depends on the loan amount and the insurance provider. The table below shows the residual debt insurance costs on a 10k loan per Finaztip’s calculations.
| Bank / Insurance | Insurance costs (Percentage of the loan amount) | Interest on loan |
|---|---|---|
| SWK/SOGECAP and SOGESSUR | 1255.48 € (≈13%) | 1896.36 € |
| ING/AXA France Vie and the AXA France IARD | 535.8 € (≈5%) | 2504.03 € |
| Hypovereinsbank/LifeStyle Protection Lebensversicherung | 912.47 € (≈9%) | 2863.52 € |
| Degussa/Creditprotect | 1146.27 € (≈12%) | 3415.10 € |
As you can see, residual insurance costs drastically increase the total loan cost. This is why you should always check the total loan cost instead of the interest rate when comparing the loan offers.
We recommend comparing loan offers on comparison portals: Smava*, Finanzcheck*, Check24*, and Verivox*.
When does residual debt insurance not pay?
Like any insurance policy, residual debt insurance contracts have many clauses you should know. The insurance company doesn’t pay the loan installments in the following cases.
- You become unemployed because of mental illness or bad behavior.
- You become unemployed during the insurance waiting period, which is usually 3 to 6 months.
- You died as a result of an addiction.
- The insurance company pays the loan installments for the first twelve months of your unemployment. After that, you must pay on your own.
- The insurer pays for up to three claims. If you become unemployed a fourth time, the insurer will not pay.
Can you cancel the residual debt insurance?
Yes, you can cancel your residual debt insurance. Here are different ways and situations to cancel the insurance contract.
- You can cancel the residual debt insurance policy within 30 days of signing the contract. In this case, you don’t need to provide any reason for canceling the contract.
- If you repay your loan early, you can cancel the insurance contract. The reasoning behind it is the purpose of taking the insurance (i.e., loan) doesn’t exists anymore.
You’ll get part of the insurance premium within 30 days after canceling the residual debt insurance.
What alternatives to residual debt insurance are there?
For small personal or car loans you don’t necessarily need residual debt or any other type of insurance, However, for real estate mortgage, it might make sense to protect yourself and your family financially.
Instead of taking residual debt insurance that covers your loan only, you can take the following insurance policies.
- Term insurance (Life insurance) to cover your family members in the event of your death. Considering the Stiftung Warentest study and customer reviews, we find Allianz Plus (LC0)* and Alte Leipziger Risk AL* among the best life insurance plans. You should also compare different life insurance plans on the comparison portal Tarifcheck*.
- Occupational disability insurance covers you if you cannot work due to an illness. Finding the right insurance plan can be challenging, so we recommend consulting an insurance broker or advisor before taking the policy.
