The protection contribution car loan is the fee for the residual debt insurance. The residual debt insurance covers the cost of the car loan in the event of certain strokes of fate. This is how the protection contribution to the car loan reduces the risks death, illness, unemployment and disability secured. One term life insurance represents an alternative to residual debt insurance for car loans, as it covers similar risks.
The payment of a car loan protection contribution to a residual debt insurance is controversial among consumer advocates. The insurance caused high cost for little benefit. Since residual debt insurance does not have to be taken out, banks do not include the fees in the advertised effective interest rates, but they urge customers to take out the policy.
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More recently, the term protection contribution or protection fee in connection with car loans is therefore primarily used to describe the cost of residual debt insurance. This is a reinterpretation of the term, which actually describes a delivery of goods that does not cover costs.
What is the protection contribution for a car loan?
In Germany there is no legally binding definition of the term "protection fee" or "protection fee" in connection with a car loan. In fact, the protection contribution is a Insurance premium for residual debt insurance and not a fee as such.
In the past, the term protection contribution or protection fee was also used in other contexts of car loans. For example, some banks charged a nominal fee if the residual protection insurance was terminated prematurely. This was also known as the cancellation fee.
However, processing fees for loans have not been permitted since 2014 due to a ruling by the Federal Court of Justice. The Federal Court of Justice (BGH) decided in two appeals on May 13, 2014 that Loan processing fees not allowed are (Az. XI ZR 170/13, XI ZR 405/12). Since then, processing fees no longer have to be paid for loans.
With the new meaning of the term protection contribution for car loans, the payment of a fee is intended to protect the debtors and their relatives from high loan rates in the event of death, unemployment, illness or incapacity to work.
The car loan protection contribution should cover the cost of the loan installments in the following cases:
- in case of death: Takeover of the remaining installments
- In case of illness: Depending on the contract, costs will be covered. Sometimes the assumption of the rates in the event of illness is a point of contention.
- in case of unemployment: Costs are covered depending on the contract. Sometimes the assumption of unemployment rates is a point of contention.
- in case of incapacity: Costs are covered depending on the contract. Sometimes the assumption of the installments in the event of incapacity for work is a point of contention.
The protection contribution for a car loan: what does residual debt insurance bring?
The residual debt insurance takes over the installment or loan payments in the event of death. In the event of death, the agreed sum insured is paid out in one go. Depending on the tariff model, the residual debt insurance sometimes pays in the event of illness or sickness benefit.
Often it is Protection of debtors by residual debt insurance not effective. Many policies have far too high fees and do not pay in case of doubt. Borrowers should like in the case of large loan amounts construction financing therefore consider alternatives such as term life insurance or disability insurance.
Nevertheless, residual debt insurance often does not bring much with a car loan. There are two major reasons for this:
- Residual debt insurance is very expensive. A large part of these costs flow back to the banks as commission
- Residual debt insurance does not always pay in an emergency. If you become unemployed or ill, there is often a dispute about who will pay the installments.
Fortunately, residual debt insurance is not mandatory. The protection contribution to the car loan should therefore be avoided. In addition, the payment of a protection contribution to the residual debt insurance often does not result in a reduction in the interest on the loan.
What alternatives to residual debt insurance are there?
Since residual debt insurance is usually far too expensive for the service offered, you should look around for alternatives. The most important of these are term life insurance and disability insurance.
Alternative term life insurance to protect loved ones in the event of death
If you're taking out a large loan with a long term, hedging can make sense. In particular to protect surviving dependents from high claims. This includes, for example, the construction financing.
There are variable models for term life insurance. In this case, the contributions to the insurance decrease with the debt of the loan. This reduces costs over time.
But even if the borrower dies before the loan is repaid, term life insurance offers protection. Because the insurance pays a sum to pay off the loan. If the 10-year period is not yet over, prepayment penalties may be due. Anyone who grants themselves high opportunities for special repayment is therefore at an advantage.
Alternative disability insurance to protect against illness
With disability insurance, on the other hand, you can protect yourself in the event of a longer illness. If you are unable to work for a longer period of time due to illness, the disability insurance will step in and cover the outstanding installments.
Can you cancel residual debt insurance?
Cancellation of residual debt insurance is usually not possible with an ongoing loan. However, there is a credit rescheduling the possibility of premature replacement by means of a special termination. However, if your contract grants you an ordinary right of termination, you can also terminate the contract without rescheduling your debt.
What does residual debt insurance cost?
Residual debt insurance is so expensive that you may end up paying more for the loan yourself. You can find an example here.
Conclusion car loan protection contribution: what is it?
In recent years, the term protection contribution or protection fee in connection with car loans has been used primarily to describe the Cost of residual debt insurance to describe. This is a reinterpretation of the term, which actually describes a delivery of goods that does not cover costs.
With the new meaning of the term, the Payment of a fee that protects debtors and their relatives from high loan rates in the event of death, unemployment, illness or incapacity to work.
However, he is Protection of debtors by residual debt insurance not effective. Many policies have far too high fees and do not pay in case of doubt. Borrowers should like in the case of large loan amounts construction financing therefore consider alternatives such as term life insurance or disability insurance.
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