Got a mortgage coming up? Save on your Outstanding Balance Insurance!

In the context of a property purchase and its financing, the bank will certainly recommend, if it does not require, that you take out an insurance policy to protect yourself against the death of one of the borrowers. This is known as a outstanding balance insurance (ASRD).

What is outstanding balance insurance?

It is a form of life insurance. It pays the remaining balance of your home loan if you die before it is due. This insurance prevents your heirs or surviving spouse from being left with a mortgage or having to sell the property.

The aim is therefore to secure your real estate investment in the event of an unfortunate unforeseen event.

Customised coverage for every situation

Each person's situation and assets are different. It is therefore important toadapt this insurance cover to each context.

For all outstanding balance insuranceyou can define :

• the level of coverage that you want to associate with this insurance. The level of cover is the percentage of the loan that you want to be covered.
• the duration of coverageThis is the time during which you will be covered, which may be different from the duration of the loan.

Optimal coverage is a 100% capital coverage by each of the borrowers for the entire duration of the loan. This means that in the event of the death of one of the borrowers, the entire loan is repaid. But you could also opt for a lower cover at 75, 50 or 25% of the amount borrowed.

Couples think that 50/50 coverage is sufficient but this is far from the case. In the event of the death of one of the partners, it is estimated that 75% of the household expenses are still there.

A good personalised assessment is necessary, whether you choose full coverage, linked to your respective incomes or on a desired amount.

Insurance, yes...but at what price?

The premium for outstanding balance insurance depends on the parameters you define and the insurance company you take out the policy with.

Pricing therefore varies from one individual to another, but also, for the same individual, from the insurance company you are going to ask. They have its own price list.

 The amount of the notional premium is determined according to :

• of the amount of the loan, its rate and duration
• the number of people to be insured and the % covered per insured
• of age of the people to be insured

It is also affected by elements relating to your personal situation. Smoking comes directly to mind, but it can also relate to your occupation, your hobbies and your state of health.

To define an exact tariff, you are invited to fill in a medical questionnaire in full transparency. The insurance company may ask you to undergo a medical examination, depending on the amount to be insured and your age.

Finally, the method of payment of the premium can be freely defined, whether it isa periodical premium or unique.

Why take out mortgage insurance?

Although not legally required, it is strongly recommended and often imposed by the bank.

The advantages of subscribing to it are :

• the peace of mind in the project of a lifetime
• the protection of your loved ones and a potential financial burden
• the choice of payment frequency (single or periodic premium)
• the specific tax framework allowing you to deduct your premiums for tax purposes

Luxembourg: focus on tax benefits

The premiums for your Outstanding Balance Insurance are tax-deductible if you are a Luxembourg resident for tax purposes.

If you opt for a periodic paymentThe article provides for a maximum annual deductible limit of 672€ per household member.

If you choose to pay for the insurance through a single premium paymentThe maximum amount is estimated on the basis of several criteria such as age or household composition. The Direct Tax Administration has therefore determined that :

• Up to 30 yearsThe threshold is increased by "€6,000 plus €1,200 for each child for whom the taxpayer obtains a child tax credit".

• After 30 yearsIn the case of the insurance, this increase is "increased by 8% for each year of age completed in excess of 30 at the time of taking out the insurance, without the amount of this increase exceeding 160% of the above maximum increase".

The importance of being accompanied

We have seen that it is possible to customise the level of coverage. You adapt it to your own situation and your position with regard to the occurrence of a death. We have also seen that the insurer's parameters are taken into account in the pricing and that not everyone values a premium in the same way.

It is therefore more than important to be with an independent insurance professional to define with you your expectations of coverage and to question the insurers on their respective rates.

If you have questions about outstanding balance insurance and are looking for a solution adapted to your situationdon't hesitate to contact Matthieu Meyer - Insurance broker atHome Assurance.