Is the outstanding balance insurance compulsory?
NOV. 2018 | PROPOSED BY OUR PARTNER ING LUXEMBOURG
Contrary to what you might think, the answer is no. Purchasing an outstanding balance insurance is not legally required when you take out a mortgage or personal loan for a significant amount. But that does not mean that you have to neglect it, because it can save you a lot of financial trouble.
But, before going further, remember what is a balance insurance outstanding (ASRD). It is a temporary insurance with decreasing capital.
As the name suggests, it covers the outstanding principal of your mortgage in the event that you are no longer able to repay your monthly payments. Depending on the conditions chosen in the insurance policy, it may be a death, a disability, total or partial, which prevents you from continuing to practice your profession, or a loss of income following an unemployment.
Specifically, the insurance company will take over the repayment of loans for you. You and your family will be protected against payment default and possible seizure of the mortgaged property .
A very variable cost
Accurately quantifying the cost of outstanding balance insurance is difficult because it is practically calculated on a case-by-case basis. It depends on your loan. The higher your capital to insure, the higher the premium will be. The duration of the loan and high interest rates may also affect the amount of the premium.
Comes next your risk of death or incapacity for work. This risk can be influenced by age at the time of signing the contract (the older you are, the higher the premium increases), smoking, your health situation and the practice of sports considered dangerous.
The number of people also has an impact. The insurance can indeed be subscribed on your couple with different coverage percentages depending on the income and age of each: from 0 to 100%. You can even, if you wish, subscribe each a cover for the totality of the capital borrowed, that is to say 100%. In this case, if one of you dies, the repayments completely disappear for the surviving spouse.
Anyway, the amount to pay may, in some cases, be around thousands of euros, especially if you pay it at once! There are indeed three possible payment methods : a single premium to be paid upon signing the contract, or several annual premiums to be paid during two-thirds of the insured period (for example, 13 premiums for a 20-year loan), or premiums to be paid each year during any the duration of the loan.
Not required, but highly recommended
Why then subscribe to insurance that has a cost while it is not legally required? For several reasons.
The first is that most Luxembourg banks include such insurance in conditions favorable to the granting of a loan. These usually offer you an insurance contract from the company with which they have exclusivity agreements. You can of course play the competition but do not forget that the bank that gives you the credit will often offer a more interesting rate if you take the whole (borrowing and insurance) at home.
Avoiding the condition of outstanding balance insurance is possible if you can make other guarantees. This will be the case, for example, if you already have life insurance or death insurance and the amount is sufficient to cover your credit.
That said, even if your bank does not require the purchase of outstanding balance insurance, think twice before giving up. By subscribing to such insurance, you provide additional security to your loved ones (spouse, children ....) and prevent them from facing financial problems after your death. Especially if the credit is very important! In addition, nothing requires you to cover the remaining capital due to 100% as required by banks. If you have no obligation to your borrowing agency for this insurance, you may well decide to cover only 50% (or any other percentage) of the outstanding principal.
Tax deductible
The tax aspect is not to neglect either. If you file your tax return in Luxembourg, you can reduce your taxes by deducting expenses related to your outstanding balance insurance from your taxable income base. At one condition : it must be underwritten by a company duly authorized in Luxembourg or in another EU country. The deductible amounts differ depending on whether you pay in multiple installments or in a single premium.
For more information, please visit www.ing.lu/immo or visit us at the branch.
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