Many Germans grapple with burdensome and expensive health insurance.
Credit insurance, a common addition to loan contracts, is a topic that often sparks debate. The question of its necessity is frequently raised, given its complex nature and potential drawbacks.
Credit insurance contracts are known for their intricacy, with numerous exclusions and waiting period clauses. This complexity can lead to an actual effective annual interest rate that is higher than the interest rate stated in the loan contract, due to additional insurance costs.
When it comes to taking out loans, credit insurance is often involved. However, consumer advice centres caution against its use, particularly when it is sold by furniture and car dealers, banks, and credit portals. These sellers are often criticised for high commissions, a lack of expertise, and the pressure exerted on consumers to purchase the insurance.
The insurance sum for credit insurance is based on the loan amount, and in the event of a claim, the monthly loan installment is usually covered for a limited period. However, understanding the conditions under which the insurance will pay out can be challenging. Consumer advice centres question whether the insurance will actually pay out due to extensive exclusion and waiting period clauses.
A study by BaFin from 2019 found that 29 percent of consumers surveyed had taken out credit insurance to secure their loan. Despite its popularity, the consumer organization refers to credit insurance as residual debt insurance or installment protection insurance, and warns against it, stating that it is expensive and provides limited coverage.
The Association of Insured also expresses concerns about credit insurance. They suggest that the insurance offers limited coverage and that the high costs make it an unnecessary expense for many consumers.
In conclusion, while credit insurance is designed to secure loan installments in case of death, inability to work, or loss of job, it is essential for consumers to thoroughly understand its conditions and seek expert advice before making a decision. The high costs, limited coverage, and potential complexity make it a topic of ongoing debate in the financial sector.
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