Payment Protection Insurance

1. Definition of "residual debt insurance"

Residual debt insurance (RSV for short; often also instalment default or loan default insurance) protects loans or the borrower (in the event of death, the insurance cover is transferred to the surviving dependants) against various default risks. Taking out residual debt insurance also increases the credit security on the part of the lender. The insurance is taken out in addition to the underlying loan agreement. The costs are usually borne by the policyholder.

The principle of residual debt insurance was first used in the USA in the middle of the 20th century and subsequently became established in Europe as well.

2. What does residual debt insurance protect against?

Residual debt insurance serves as cover for various default risks. As a rule, residual debt insurance is taken out for the following cases

  • Unemployment

  • incapacity for work or

  • death

during the term of the loan. Depending on the insurance provider, only individual or all risks can be covered. The amount of the insurance premium depends on the scope of the insurance cover. Depending on the provider, the premium is payable as a lump sum at the beginning of the loan term or as a monthly instalment over the term.

In principle, it is advisable to take out residual debt insurance especially for loans with high loan amounts and/or long terms. Thanks to an RSV, forced sales (of residential property, vehicles, etc.) can be avoided and heirs can be protected from taking on debts.

3. When is residual debt insurance possible?

In principle, every borrower can take out an RSV. In addition, residual debt insurance is basically possible for all common forms of credit. This includes

  • Consumer loans

  • Leasing contracts

  • Mortgages

  • credit card accounts and

  • customer card accounts

a. In the case of unemployment, it is assumed that the borrower is not at fault. Illnesses or causes of death that already exist when the insurance policy is taken out are usually not covered either.