As homeowners and other prospective buyers of property know, once the loan for their purchase has been accepted, it is strongly recommended that they take out insurance to cover the repayment of the amount still owed in the event of death or invalidity. This is the famous outstanding balance insurance.
Usually offered by the bank granting the loan, this insurance is nevertheless part of the insurer’s core business. Who better than the insurance company to offer the best coverage in the event of a property purchase?
It is the essential insurance for any new borrower when buying a house or flat: the outstanding balance insurance guarantees that the loan will be automatically repaid in the event of a life accident (death or disability) of the subscriber. This means that you can plan ahead with complete peace of mind and protect your loved ones from a heavy debt if a tragedy should occur.
Based on the credit contracted, it is a temporary insurance, limited to the duration of the loan repayment and whose insured sum decreases each month according to the amortization table defined at the time of subscription. In the event of the death or disability of the subscriber, the payment of the balance remaining to be repaid is taken over by the insurer who pays this amount to the bank, thus freeing the relatives from the debt.
Although the vast majority of outstanding balance insurance policies are taken out for a property project, they can also be used to guarantee the repayment of major consumer loans, such as the purchase of a car, a trip or renovation work.
The insurance premium can be paid in one go or spread over time with quarterly or monthly instalments. Several factors are taken into account when determining the amount of the premium, which is calculated on a case-by-case basis: the capital of the loan to be insured, the interest rate, the duration of the loan, the age of the borrower(s), their state of health and the extent of the cover.
Outstanding balance insurance offers great flexibility. As mentioned above, the policyholder can choose to cover death, total or partial disability, and can even choose to cover a reduction in income due to loss of employment, for example.
Similarly, it is possible to divide the amount to be insured between each of the co-borrowers, depending on their income, physical condition or lifestyle (there can be a distribution such as 100%-75%, 75%-75%, 50%-50%, etc.).
In addition to the essential protection it offers to the policyholder and his or her relatives, outstanding balance insurance is also advantageous from a tax point of view. Indeed, when the taxpayer declares his income, it allows him to deduct the premiums paid from his taxable income. Subscribers benefit from a tax deduction of up to €672 per person in the household in the case of periodic premium payments.
This maximum deductible amount may vary depending on the number of people in the household and the number of children. For example, a family with two children can benefit from €2,688 in annual tax deductions for the premiums paid on behalf of the outstanding balance insurance.
In the case of a single premium, i.e. paid in a single payment, the maximum deductible amount depends on the age of the taxpayer and the number of people in the household, making it possible to take advantage of a favurable tax regime thanks to higher deductible limits. Indeed, a single person taking out outstanding balance insurance before the age of 30, which he or she pays in a single premium, can benefit from a tax deduction of €6000.
Outstanding balance insurance includes other factors to be taken into account in tax optimization.
It is therefore an excellent idea to consult your insurer when arranging such insurance, both to obtain tailor-made cover adapted to your particular needs and profile, and to choose the most advantageous formula for tax purposes.
For more information, please follow this link:
https://www.baloise.lu/en/private-individuals/Personal-protection-savings--pension/Outstanding-balance-insurance.html
