Is insurance for the remaining balance due compulsory?
Contrary to what you might think, the answer is no. Purchasing insurance for the remaining balance due is not legally required when you take out a mortgage or personal loan for a significant amount. But this 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 insurance for the remaining balance due (ASRD). It is temporary insurance with decreasing capital. As its name suggests, it covers the principal remaining due of your mortgage in the event that you are no longer able to meet your monthly payments. Depending on the conditions chosen in the insurance policy, it may be a death, total or partial disability, which prevents you from continuing to do your job or a loss of income following job loss. Specifically, the insurance company will take over the repayment of loans for you. You and your family will be protected from payment default and any possible seizure of the mortgaged asset.
A highly variable cost
Accurately quantifying the cost of insurance for the remaining balance due is difficult, because in practice it is 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. Then comes 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 be subscribed by you and your partner, with different coverage percentages depending on your respective incomes and ages: from 0 to 100%. You can even, if you wish, each subscribe to a cover for the full amount of the capital borrowed, that is to say 100%. In this case, if one of the two of you dies, repayments disappear completely for the surviving spouse.
In any case, the amount to pay may, in some cases, be in the region of thousands of euros, especially if you pay it at once. There are three possible payment options: either 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 for the duration of the loan.
Not compulsory but strongly recommended
Why subscribe to insurance that has a cost when it is not legally required? For many reasons. The first is that most Luxembourg banks include such insurance in favourable conditions for the granting of a loan. These usually offer you an insurance policy 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 out everything, borrowing and insurance, with them. Avoid the condition of insurance for the remaining balance due if you can present 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 subscription of insurance for the remaining balance due, think twice before giving up. By subscribing to such insurance, you provide additional security for your loved ones (spouse, children, etc.) and save them from facing financial problems after your death, especially if the loan is very large. In addition, nothing requires you to cover the principal remaining 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 principal remaining due.
The tax aspect is not to be neglected either. If you file your tax return in Luxembourg, you can reduce your taxes by deducting expenses related to your insurance for the remaining balance due from your taxable income base. On one condition: this must have been subscribed with a duly approved company in Luxembourg or another EU country. The deductible amounts differ depending on whether you pay in multiple instalments or in a single premium.
For more information, see www.ing.lu/immo or visit our agency.
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