Life Insurance

Secure your loan with life insurance

Banks make money lending, but they need collateral when lending. Often this security is missing, but the bank does not want to refuse the customer the loan. In these cases, the banks like to see the customer have life insurance. This life insurance offers the bank the necessary security and the borrower also has the option of putting money back.

Life insurance as security

Whether life insurance is sufficient as security for a bank loan always depends on the amount of the loan. The already saved sum of life insurance is not always enough for the bank to serve as security. The surrender value is also interesting for the bank, only if it is correct, then the bank grants the desired loan. Life insurance becomes the property of the bank when the loan is granted, but the owner of the insurance must continue to pay the contributions. If the loan is repaid, the owner gets the insurance policy back. In this way, the borrower does not lose any money and he has the opportunity to get money at short notice.

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To finance a house or an apartment, a loan is usually necessary. The term extends over several decades and life insurance often serves as security for the bank. Classic life insurance is still one of the most popular forms of investment among Germans. The fact that insurance suffers from the extremely loose monetary policy of the European Central Bank cannot diminish enthusiasm. Even the banks still see life insurance as good security , regardless of whether it is a capital life insurance or a term life insurance. However, there are some banks that only accept term life insurance as additional collateral, while the endowment insurance alone serves as collateral.

How does the insurance as collateral?

If a borrower uses his endowment insurance as collateral for A loan is deposited, then the bank determines what happens to this insurance. If the borrower is no longer able to pay the installments on time, the bank cancels the insurance. She then receives the current surrender value of the life insurance from the insurance company. The customer’s loan is then repaid with the sum from the insurance. However, the borrower must first assign the insurance to the bank. This process is usually not a problem and the bank will immediately inform the insurance company where to transfer the money. Since the amount of the loan is based on the respective surrender value of the insurance , it is very important to write what the insurance company sends to its customers once a year. In these letters, the insurance company tells the customer how much his insurance is currently worth.

Acceptance of all types of credit

In principle, life insurance policies can be used as security for almost all types of credit. The loan offer ranges from standardized annuity loans to repayment-free loans to variable-interest loans. If it is a grace-free loan , the borrower only pays the interest during the term of the loan. At the same time, however, he must continue to pay the premium for life insurance. At the end of the contractual term, the loan is replaced by the sum insured, which is paid out, together with the surplus shares. Such credit structures are not uncommon for special civil servant loans . Only civil servants and a few public sector employees receive such loans, which usually run for twelve years. The relatively long term is an important aspect for tax reasons.

Advantages for both sides

Life insurance as security for a loan is something that benefits both sides. The lender can be sure that he gets his money , even if the installment payments should fail. The borrower has security when he needs a loan, but not only that. He also has an investment that ensures a good old age, and the family is covered in the event of death. The bank always wants to make sure that there are sufficient amounts available when lending. In principle, the following applies: The lower the risk for the bank, the more likely it is to get the desired loan on favorable terms. For the borrower it is always an advantage to keep the risk potential as low as possible. Life insurance as security is a very good idea.

Is residual debt insurance recommended?

In addition to life insurance, so-called residual debt insurance also plays an important role as security for a loan. This insurance is available in different versions . However, it is always intended to protect the family in the event of the death of the borrower. In contrast to term life insurance, the sum of which does not change during the entire term of the loan, the residual debt insurance is reduced together with the residual debt of the credit . The borrower pays a smaller amount for the insurance every year. Many banks offer the remaining debt insurance when taking out a loan as additional security. One of the advantages of this insurance is that the banks accept this insurance as collateral and that the borrower’s assets remain untouched in the event of an emergency. The disadvantage of insurance is that the contributions are co-financed. This increases the total of the loan and the burden of the interest continues to rise.

Is it worth taking out disability insurance?

Taking out disability insurance is definitely a must recommend , but the BU plays a special role when it comes to a loan. Anyone who can no longer work for health reasons has to live with a pension that is often insufficient to live on. The situation is always particularly precarious when there is still a loan, because without an income it is not possible to pay the installments. Here, the payments from the disability insurance can be of great help to pay off the remaining debt. The disadvantage of the BU is that the contributions vary greatly depending on age, occupation and state of health.

Conclusion

Although life insurance is no longer as attractive today as it was 15 years ago, many Germans still rely on this insurance. When it comes to security for a loan, endowment life insurance is a good choice, as the banks are happy to accept this insurance as a security deposit. The credit balance from the insurance is used to pay off the loan , but unfortunately the old-age provision for which the life insurance was originally intended is lost.

Image: @ depositphotos.com / valphoto

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