When you take out a loan, you enter into a long-term obligation to repay monthly amounts. During this time, unforeseen events can always occur that affect your ability to repay your loan. For this purpose, there is the possibility of taking out credit insurance that offers financial security with regard to loan repayment in specific situations. We take a look at the arguments for and against credit default insurance.
Credit Loss Insurance – What Is It All About?
A credit loss insurance is often also referred to as residual debt insurance or installment default insurance. It is used to repay due personal loans or business loans if a borrower is insolvent through no fault of his own or can no longer service the outstanding installments.
The borrower takes out credit insurance in addition to the current loan agreement. Even if there is no legal obligation, some providers link the lending to the condition of taking out default insurance.
Who benefits from credit default insurance?
Credit insurance offers security for both sides – lender and borrower.
For lenders, installment loss insurance means a reduction in the credit default risk and thus also planning security for the company.
Credit insurance offers borrowers the opportunity to protect themselves against unexpected changes in life. Above all, this includes unemployment, incapacity for work or death. Most of the time you have the choice to protect yourself against individual cases or to take advantage of the complete protection. Depending on the scope of protection, the cost of insurance is also determined.
Take out credit default insurance or not?
This question cannot be answered with a general yes or no. Taking out credit insurance can make sense, but should be decided on a case-by-case basis. Because how rewarding a loss of payment insurance is depends not least on your own financial situation and willingness to take risks as well as family circumstances.
In the event of an emergency, there is always an argument in favor of taking out insurance in general. This also applies to credit insurance.
In times of economic downturn, the probability of unemployment increases. Even if social security in Switzerland is above average in such a case, there is a significant drop in income. The assumption of monthly credit installments can create the necessary financial scope here.
Nobody foresees serious illnesses or even death. Even in such a scenario, it is important that the financial situation has no negative effects for yourself or even family members.
In principle, it makes sense to hedge large amounts of credit, such as home loans. Insurance protection is also recommended for loans with long terms, since the risk that there will be a significant change in living conditions is significantly higher. Helvetia insures installment payments of up to $ 2,000.
However, insurance is often not worthwhile for small loans. Then it makes the loan amount significantly more expensive than it offers additional protection.