Consumer Alert: High Costs, Limited Benefits of Residual Debt Insurance
Consumers are warned about residual debt insurance (RDI), also known as installment protection insurance, due to its high costs and limited benefits. The consumer center criticizes the lack of expertise among sellers and the pressure exerted on consumers to discover the best car insurance options.
RDI is marketed to secure loan installments in case of death, incapacity to work, or loss of employment. However, experts warn that these policies often come with many exclusions and waiting periods, making it uncertain if they will pay out.
The consumer center is concerned about the lack of expertise among intermediaries selling these insurances. This can make the product complex and difficult to understand for consumers. Additionally, insurance distributors previously received high commissions for selling RDI, exerting pressure on consumers to buy.
A 2019 study by BaFin found that 29 percent of consumers surveyed had taken out RDI to secure their loan. The insurance premium is often financed as a one-off amount directly with the loan, increasing the net loan amount and interest costs.
In the event of a claim, RDI usually covers the monthly loan installment for a limited period, with the sum insured based on the loan amount. Despite its promise of security, the consumer center warns against RDI due to its high costs and limited cover. It advises consumers to carefully consider their needs and understand the policy's terms before purchasing.
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