1. What is payment protection insurance and when does it make sense?
Payment protection insurance protects the lender and the borrower against what are known as default risks. "Default risk" means that the borrower can no longer pay the instalments.
2. Instalment insurance for borrowers
Depending on the product, instalment insurance will cover default risks such as involuntary unemployment, temporary incapacity for work, illness or accident, up to complete incapacity for work with disability pension.
The terms and conditions and insurance cover vary from provider to provider with regard to the following:
Waiting periods
Maximum number of instalments per claim
Maximum instalment amount per month
Maximum number of covered instalments per contract
Some lenders automatically insure borrowers against temporary and total incapacity for work.
3. Payment protection insurance for lenders
Most lenders take out group insurance to protect themselves in the event that a borrower dies. In this case, the outstanding debt will be covered by the insurance. Other insurance benefits such as loss of job are usually paid for by the borrower.
4. Instalment insurance in the event of involuntary unemployment or inability to work
A borrower can take out instalment insurance to cover involuntary unemployment. The borrower's right to have their instalments paid is clearly regulated by each lender.
Basically, the following applies:
The employer terminates the employment contract.
Notice of termination is given at the earliest after a defined period following the conclusion of the loan agreement, for example, 60 days.
The borrower is unemployed for a defined period (e.g. 60 or 90 consecutive days).
Depending on the contract, the monthly instalments may be reduced for a defined period or may not have to be paid at all.
Since the criteria for the insurance company paying out are strictly defined and this insurance increases the loan costs, it is worth examining the terms and conditions carefully.
You can find more information about the lending procedure here.
This article was first published on 10.01.2022