Many Germans grapple with burdensome and expensive health insurance policies
Credit insurance, also known as residual debt insurance or installment protection insurance, is a common offering when taking out a loan. The sum insured for this type of insurance is typically based on the loan amount.
However, the insurance premium is often paid as a one-time amount directly with the loan, increasing the net loan amount and interest costs. This practice, according to the Consumer Center, can create a significant financial burden for consumers.
The Consumer Center argues that credit insurance is complex due to many exclusions and waiting period clauses. Corresponding formulations on costs and risks, they claim, were intended to cause uncertainty. Understanding the conditions under which a credit insurance will pay out can be difficult.
In the event of a claim, the monthly loan installment is usually covered for a limited period with credit insurance. However, it is questionable whether the insurance will pay out at all, due to extensive exclusion and waiting period clauses.
The Association of Insured also expresses concerns about credit insurance. Experts suggest that it may not be necessary in all cases. The pressure exerted on individuals to purchase credit insurance is a major criticism point.
A study by BaFin in 2019 found that 29 percent of consumers surveyed had taken out credit insurance to secure their loan. Yet, the Consumer Center advises against it due to its high cost and limited coverage. They state that credit insurance provides little cover.
The Verbraucherzentrale further states that the costs of credit insurance increase the effective annual interest rate beyond what is disclosed in the credit contract, creating a significant financial burden for consumers. They also suggest that these additional costs do not have to be shown in the effective annual interest rate.
In conclusion, while credit insurance is designed to secure loan installments in case of death, incapacity to work, or loss of job, consumers should be aware of its complexities, high costs, and potential lack of coverage. It is important to thoroughly understand the terms and conditions before deciding to purchase credit insurance.
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