Residual Debt Insurance
Residual debt insurance pays off the outstanding loan amount if the borrower dies, becomes disabled, or loses their job.
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Detailed Explanation
Residual debt insurance (RSV in German) is protection for loans that repays the remaining amount in certain events. It is frequently offered with installment loans and mortgages.
Covered risks (depending on contract): - Death of the borrower - Disability (due to illness or accident) - Unemployment (through no fault of own)
Critical aspects: - Often very expensive relative to benefits - Can significantly increase the effective interest rate - Exclusions (pre-existing conditions, waiting periods) - Not always sensible - check alternatives
Alternatives to residual debt insurance: - Term life insurance (often cheaper) - Private disability insurance - Own savings reserves
Important: Since 2010, residual debt insurance may no longer be sold compulsorily with the loan. You must have a one-week cooling-off period.
Practical Example
Mr. Muller takes out a loan of 15,000 EUR. The insurance costs a one-time 1,500 EUR. Upon his death, the insurance would pay the remaining amount to the bank. However, term life insurance for the same protection might be cheaper.
Legal Basis
§358 BGB, EU Consumer Credit Directive