Do you choose not to pay the premiums for your debt balance insurance in one go, but to spread them over time? Then the reimbursement is more comfortable, but also more expensive at the end of the journey. In this piece, we give you the details on what they stand for and how you can make a good choice.
Anyone who lends for a home will usually also take out a debt balance insurance policy. The insurance is not compulsory, but in practice banks do require that such a policy is taken out. For example, they have a guarantee that the loan will be repaid if one of the borrowers dies. The premium for the debt balance insurance can be paid or paid in one go. Both options have their advantages and disadvantages.
The one-off premium
“With a single premium, the policyholder pays for everything in one go. The total contribution burden is lower, but a large amount must be coughed up in one go,” says Gerrit Feyaerts of AG Insurance. The amount for the debt balance insurance can possibly be borrowed if the bank agrees, but rather rarely happens.
In addition to the lower total contribution burden, in some cases a fiscal consideration argues in favour of a single premium. This applies, for example, to those who take out a mortgage loan and a debt balance insurance at the end of the year. “In that case, the tax basket is usually not yet filled and there is still room to deduct the premium of the debt balance insurance, which in the following years usually does not work anymore because the tax basket is already filled with the repayment of the loan burden,” Feyaerts explains.
However, it is important to know: if only one premium has been introduced for tax purposes (single or periodic), the paid-out capital will be taxed in the event of death. This does not happen if a premium has never been deducted for tax purposes.
The regular premiums
There are two formulas for those who opt for the regular premiums. Either it concerns levelled premiums: the premium remains unchanged and is paid off during two thirds of the contract’s term. Either it is a risk premium: it is recalculated every year on the basis of age and insured capital. The risk premium is paid during the entire term of the contract.
“Anyone who chooses regular premiums can spread the payment over time, which is financially less demanding, but ultimately the total contribution burden is higher”, says Feyaerts.
And there is another – rather creepy – advantage. Because if the insurance has to be used because one of the borrowers has died, the premiums still owed must no longer be paid. In other words, Feyaerts added that: “In that case, the insurer pays the insured capital – with which the customer can repay the debt balance – to the bank, so that there is no longer a risk item and the contract expires, it is one of the advantages of a regular premium payment.”
Once or periodically?
The answer to that question depends on the situation. The choice for a single premium is already the cheaper option. The question then is mainly whether it is financially feasible to put the premium amount on the table at once. Just to give you an idea: the one-off premium is easily between 3,400 USD and 5,500 USD for a 36-year-old non-smoker who is taking out a mortgage loan of 250,000 USD with a term of 20 years. With a regular premium, the same 36-year-old would have to pay 316 to 455 USD annually for 13 years.