Get construction money immediately and repay this loan later with the help of a life insurance policy: That is the principle of an insurance loan for building finance. This model is usually offered by life insurance companies who want to use it to enter the mortgage lending business. After the contract has been signed, the customer receives the loan to finance his property. From this point on, he starts making monthly installments. However, this does not in any way repay the loan. He only pays the interest and at the same time pays into life insurance. If the loan expires, the paid insurance premiums plus the investment income from life insurance will be used for repayment.
Yield forecasts should be treated with caution
At least that’s how it is in theory. However, many insurers have repeatedly had to adjust their earnings forecasts downwards in recent years. If this happens again, the sum from the insurance may not be enough to repay the loan in full. For this reason, you should only plan the guaranteed interest of the life insurance as a precaution. Because: If the surpluses are not as high as expected, the client has to refinance. In addition, the calculation of the effective interest rate is complicated by the fact that the borrower on the one hand has to pay the interest on the loan and on the other hand can post the interest on the life insurance credit on the profit side. Therefore, you should definitely request a written and binding calculation of the total effective interest rate from your provider. After all,
Secure the family
Around 60 percent of the sum insured is paid in the event of an unexpected death.
Despite these uncertainties, the insurance loan offers advantages. First of all, there is coverage in the event of death. If the borrower dies, the insurance is paid to his surviving dependents. The loan can be largely repaid and the relativesare free of debt. But there are also other options for protection, for example in the form of residual debt insurance. Jonas Kemler, chairman of the board of the Federal Association of Real Estate Financiers, suggests another model: “Better than an insurance loan is an immediate repayment and a risk life insurance for protection,” advises the expert. The interest payments that would be saved by the repayment were in many cases sufficient to finance life insurance. This insurance should be such that it enables the repayment of the building loan and also ensures the survival of the surviving dependents. Risk life insurance is much cheaper than capital life insurance. Risk life insurance is only paid out in the event of death. In individual cases.
Not without your tax advisor
Insurance loans are often interesting for investment properties.
An insurance loan opens up interesting perspectives from a tax perspective, especially for construction investors who pay high tax rates and want to rent the financed property. “When it comes to financing rented property, the type of income, income from letting and leasing, is essential for tax purposes,” explains Henna Pontiler, Astro Finance Consumer Center. “ Financing costs can be deducted as advertising costs. This initially results in negative income from renting and leasing and a reduction in the tax burden. “
Financial expert Jonas Kemler also sees insurance loans as a tool for financing an investment property. “I usually advise owner-occupiers of this construct. Basically, it can be said that the target group is primarily financiers who can claim the accruing interest on the tax, ”explains Kemler. The profit shares can also have an unfavorable effect on taxation. Therefore, an insurance loan should always be calculated together with a tax advisor.