A lot is calculated and calculated when it comes to a loan for the purchase of real estate or the construction of a new home. However, it is not only the pure credit terms that require an intensive review; securing the repayment is also part of an optimal real estate loan. There are various insurance options available for real estate loans. The costs for the corresponding insurance premiums must then of course also be taken into account in the expenditure budget. It is therefore a good idea to think carefully about this before you take out a loan.
Why home buyers need insurance
Life almost never runs in completely straight and completely predictable paths. Changes in the personal circumstances of the borrower can have an adverse effect on the income and thus on the repayment of the real estate loan. The greatest risks are incisive events such as:
- Illness or accident that lead to incapacity for work or work
- Borrower’s death
If one of these cases occurs and there is no sound protection, the borrower or his relatives face a major problem, because life goes on and the bank wants their money. A short-term suspension cannot be a solution here, since a quick improvement in the financial situation in such events is the exception rather than the rule. If the installments can then no longer be paid, the worst case scenario is the loss of the property.
Damaging or destroying the property can have far-reaching consequences. The effects of natural forces, vandalism, burglary, fire, water damage automatically mean costs that tear a gigantic hole in the household budget. Therefore, insurance of the building is usually essential for real estate borrowing and contractually specified.
When building, renovating or modernizing a property, additional unpredictable risks have to be taken into account, which is why a lack of insurance can be expensive for the builders and thus also endangers the loan.
What types of insurance are required?
In the following, all possible insurances are listed and described depending on the risks. Prerequisites and scope of services must always be carefully studied with the providers in order not to experience a nasty surprise later. Generally, the borrower is free to choose the insurance company. Residual debt or life insurance are sometimes linked to the loan agreement and are then taken out with an insurance partner of the lending bank.
Disabled means that the learned or previously practiced profession can no longer be practiced. Reasons for this are, for example, physical or mental illness, accident or disability. Disability can be permanent or temporary, but it must be at least 50% and determined by a doctor or expert. However, the disability does not necessarily preclude the person concerned from being able to work in another profession.
An occupational disability insurance covers employees, employees and the self-employed by paying an occupational disability pension. This voluntary private insurance is recommended for all who depend on their labor for their livelihood. Since the requirements and conditions vary from provider to provider, a comparison is worthwhile.
The insurance tariff is determined by the job, health status and desired pension level of the potential policyholder. High-risk occupations such as bricklayers or roofers demand a higher premium, the same applies to hobbies that can also be queried. So if you regularly do bungee jumping or alpine climbing, you will be upgraded accordingly. The most important criterion for taking out a BU insurance at all is the state of health when the contract is concluded. Here, however, there are again large differences in the design of the providers, which impairments exclude the conclusion.
In principle, occupational disability insurance should be taken out as early as possible, from the very start of your career. When it comes to tariff conditions, it is not only the cheapest premium that is important, but rather flexible premium adjustments, a waiver of the abstract referral (working in another profession) and, if necessary, payment in the event of only temporary disability.
Term life insurance
Risk life insurance comes into effect in the event of the borrower’s death. The amount determined when the contract is concluded will be paid to the beneficiaries. Beneficiaries can be life partners, relatives, companies, business partners or associations. The insurance premium is usually paid in a monthly installment, but it can also be agreed as a one-off sum when the contract is concluded. This is the case, for example, if the life insurance is linked to a real estate loan. The total amount is added to the loan amount and allocated to the monthly loan installment. Various banks explicitly require this protection for real estate loans. Residual debt insurance is a sub-form of risk life insurance.
Payment protection insurance
The residual debt insurance is the most well-known protection in the credit system. It relates directly to the loan and, depending on the tariff model, covers risks such as incapacity to work, disability, unemployment, death or, if applicable, divorce. Each risk as well as the combination of several or all possible risks can be insured. The more extensive the coverage, the more extensive the examination options are. The contribution amount also increases accordingly.
The amount of the premium depends on the term, the sum insured, the age at the time the contract was concluded, and the state of health. Health, occupational and leisure risks as well as the level of education are also included in the calculation. With two or more borrowers, it makes sense for everyone to take out such insurance. Compound policies with reciprocal benefits are also possible.
Real estate financing is offered by numerous banks with the right residual debt insurance, or it is required. Both the tariffs and the conditions and benefits show such large differences depending on the provider that an independent comparison in advance is advisable to exclude expensive insurance.
The unemployment insurance in relation to the repayment of the loan is to be differentiated from the statutory or voluntary unemployment insurance. It is therefore not to be equated with the employer’s and employee’s share or the voluntary insurance of the self-employed.
The so-called “unemployment protection insurance” is a private supplementary insurance in order to better cushion financial losses. It closes a pension gap between unemployment benefit I and previous earnings. The amount of the benefit is 33 to 40 percent of the last net salary. Supplementary unemployment insurance is currently only available for people in dependent employment, but not for the self-employed.
With this insurance, there are a few points to consider regarding the obligation to pay benefits:
- Applies only to operational layoffs, with some providers also when concluding termination agreements or if wages are not paid for at least three months
- Waiting times must be observed, duration varies depending on the insurance company
- Limited benefit period, e.g. 12 months, 21 months
The prerequisites for graduation are also linked to conditions:
- Non-terminated employment (temporary or permanent)
- There is no relationship to the employer
- Working hours are at least 15 hours a week
- Minimum income net 1,000 euros / month
- Age restriction (often up to 60 years)
- German main residence
The contributions to private unemployment insurance must also continue to be paid during unemployment. The supplementary insurance ends when the pension begins.
Building insurance for existing properties is one of the most important and that is why every homeowner should have taken out one. In loan agreements for the real estate loan, the conclusion is usually mandatory. The insurance is primarily available for privately used residential property. A commercial share is taken into account if the part used for residential purposes is at least 50%. Residential building insurance is only intended for completed buildings. There are some special insurance models for houses under construction. A prerequisite for the insurance’s obligation to pay benefits is that the damage was not caused intentionally or through negligence.
The premium for residential building insurance depends on the one hand on age, living space, condition, equipment of the property and on the other hand on the scope of the integrated insurance benefits. Since there are some significant differences in the tariff models and constant adjustments are made, a well-founded comparison of providers is essential.
Numerous risks can be insured, whereby the standard is limited to the basic risks of fire, tap water, storms, hail and the resulting damage to the property and the fixed inventory (e.g. heating system, bathtub, permanently installed floors). For this purpose, the group insurance of fire insurance, tap water insurance and storm insurance offers itself. Burglary damage is usually also insured if the damage has definitely occurred to the building and its solid components.
A number of supplementary insurance policies can be included in the contract. This includes natural damage insurance, which pays for damage caused by floods, floods, snow pressure, avalanches, landslides and earthquakes, among other things. There is also glass insurance for windows.
Household insurance can also be part of residential property insurance, whereby this always refers to the selected damage insurance. Anyone who has a group insurance will be replaced in the event of damage by fire, tap water or storm, the household items that have been damaged by these events. If, for example, furnishings are destroyed by flooding, the household contents insurance for fire, tap water or storm does not pay.
The so-called house and landowner liability insurance is another and important additional insurance within the building insurance. This takes over third party claims for damages against the house and landowner, which result from a neglect of the traffic safety obligations, e.g. passers-by slip on paths not cleared of snow and injure themselves.
Builder’s liability (for house construction)
The owner’s liability is a voluntary insurance, but it should not be waived. This insurance covers liability claims of third parties for the new construction of a house as well as for major renovation and refurbishment measures, which have been damaged due to the violation or neglect of the road safety obligations of the owner.
Something can always happen on a construction site, on the one hand if it is not secured according to the regulations, and on the other hand during construction work. Safety precautions must therefore be taken, and compliance with building regulations must also be checked. A popular example of liability damage is children playing, who can gain access to the construction site due to insufficient barriers and then injure themselves or fall into a pit. The builder is responsible for this, he is responsible for the safety, control and monitoring obligations, even if he entrusts the contractor with the execution of the tasks.
Personal injury, property damage and pecuniary damage are insured in the owner’s liability. If, for example, a passerby is on a bike and is injured by falling roof tiles, which also damage the bike, the insurance company also takes action to replace the bike. Financial losses refer to consequential losses and include benefits due to loss of use or loss of earnings of the injured party. Damage that can be inflicted on family members is not insured. The intentional or negligent disregard of the building owner’s obligations also excludes the insurance’s obligation to pay benefits.
The basis for the amount of the insurance sum is the construction sum, which can be provided through construction financing, plus risk premiums for own contributions. In-house contributions generally involve a higher risk, for example if the client is not a specialist. This increases the premium. The builder’s liability insurance is taken out for the entire construction period, ideally before the first step until the official acceptance of the construction. The home and landowner liability insurance is often included. If you want to be on the safe side, opt for insurance immediately after buying the property, because even a building plot carries its risks.
Experts recommend that the sum insured be set too high rather than too low and that the offers be compared. Since accidental damage in particular can result in high claims for damages, the builder is always advised not to give up his scepter and also to control the work of the contractors.
Construction insurance (for house construction and renovation)
While the owner’s liability explicitly represents protection against damage to third parties, the construction insurance, also construction insurance, is responsible for damage to the building caused by natural forces such as flood or storm, vandalism, construction and material defects, negligence in the implementation, theft of materials, Tools, machines are created. Anyone who builds or extensively refurbishes is well advised to take out construction insurance. It is also used by contractors as an important safeguard. Fire, fire and lightning strikes are not covered by this insurance – Here you will find the fire shell insurance, which should not be missing in the construction phase.
The construction service insurance is also limited in time to the construction phase. Construction costs or renovation costs as well as personal contributions determine the sum insured and the premium amount. As with the owner’s liability insurance, personal contributions increase the premium, even if they reduce the overall construction or renovation costs. The scope of services in detail varies depending on the provider and should be checked carefully before conclusion. Damage to the building can be serious and quickly move into the five- to six-digit range. Therefore, it is better to insure more and higher than to endanger construction finance in the end through high costs.