Pricey Peril Warned: Specialists Caution About Insurance - Millions of Germans Possess It
Residual debt insurance (RDI), also known as credit protection insurance, has been a common add-on for consumers taking out loans in countries like Germany. This insurance, often called Restschuldversicherung, is designed to secure loan installments in case of death, unemployment, or disability during the loan term.
Previously, the sale of RDIs was lucrative for insurance distributors such as furniture or car dealerships, banks, and credit portals, as they received high commissions. This insurance premium is often paid as a single amount directly with the loan, increasing the net loan amount and interest costs.
A study by BaFin in 2019 showed that 29 percent of consumers surveyed had taken out RDI to secure their loan. However, experts and consumer protection organisations have raised concerns about the product's high costs and limited coverage.
The conditions of RDI are often difficult to understand, according to the Consumer Center. Corresponding formulations about costs and risks were intended to cause uncertainty among consumers. The insurance contract conditions often contain extensive exclusion and waiting period clauses, making it questionable whether the insurance will actually pay out.
In the event of a claim, the monthly loan installment is usually taken over for a limited period by RDI. The insurance sum is based on the loan amount, and in the past, these additional costs did not have to be shown in the effective annual interest rate, leading to a higher actual effective annual interest rate than the interest rate stated in the loan contract.
The Federation of Insureds has also advised caution regarding RDI. They highlight that many intermediaries of RDI are not experts, which raises concerns about their ability to advise customers appropriately. The Consumer Center echoes this sentiment, stating that RDIs are expensive and provide little cover.
Experts say that RDI is unnecessary, as consumers can arrange for alternative protection measures if they so wish. It is essential for consumers to carefully consider the costs and benefits before deciding to take out RDI when taking out a loan.
In conclusion, while RDI may seem like a helpful addition to a loan, it is crucial for consumers to exercise caution and carefully review the terms and conditions before making a decision. It is always advisable to seek independent financial advice to ensure that the best decision is made for your individual circumstances.
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