Insurance pitfall? Experts caution Germans on insurance coverage - millions reportedly carrying it
In a recent advisory, the Federation of Insureds has urged consumers to exercise caution when considering residual debt insurance (RDI). This type of insurance, often suggested when taking out a loan, is marketed as a means to secure loan installments in case of death, incapacity to work, or loss of employment. However, a closer look reveals potential pitfalls.
According to the Consumer Centre, understanding the conditions of RDI can be challenging. The insurance premium for RDI is typically paid as a one-time amount directly with the loan, increasing the net loan amount and interest costs. Moreover, the insurance conditions often contain extensive exclusion and waiting period clauses, making it questionable whether the insurance will actually pay out.
The Consumer Centre also points out that many intermediaries of RDI are not experts, which may lead to a lack of proper advice. Additionally, the pressure exerted on individuals to buy RDI is a major critical point, according to the Centre.
In a study conducted by BaFin in 2019, it was found that 29 percent of consumers surveyed had taken out an RDI to secure their loan. Despite the widespread use of RDI, the search results do not provide information about where it is most commonly offered.
Insurance distributors such as furniture or car dealerships, banks, and credit portals receive high commissions for the sale of RDI, according to the Consumer Centre. Despite the additional costs representing a significant financial burden, they did not have to be shown in the effective annual interest rate, according to the report.
The Centre warns against RDI, stating it is expensive and provides little coverage. Corresponding formulations on costs and risks were intended to cause uncertainty, according to the Centre. The pressure to buy RDI, coupled with its questionable payout conditions and lack of transparency, makes it a product that consumers should approach with caution.
In light of these concerns, the Consumer Centre advises that consumers should thoroughly research RDI before making a decision. It is essential to understand the conditions, costs, and potential risks associated with this type of insurance. By doing so, consumers can make informed decisions and protect themselves from potential financial hardship.
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