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Outstanding balance insurance: What do you need to know?

When customers take out a mortgage, they are often asked to take out outstanding balance insurance as well. What exactly does this mean? What are the benefits of this kind of insurance? Discover the main rules.

What is outstanding balance insurance?

Outstanding balance insurance is already relatively well known among the general public. That is because this (non-mandatory) insurance is often mentioned in connection with taking out a mortgage loan with a bank. But did you know that you can also take out this insurance with other types of loan, such as a car loan or a personal loan?


In other words, your partner or heirs will not have to use their own savings to repay this amount if you die. That way they will have extra breathing space financially to continue paying daily bills and expenses.

At the same time, this formula provides the lending bank with the security of knowing that the amount borrowed will be repaid in full.

This insurance is therefore a form of death insurance.

What types of outstanding balance insurance are there?

If you choose this insurance, you and your partner will have various options available to you. This will give you the opportunity to customise the insurance, with a formula that is perfectly aligned with your personal wishes and needs.

 

  • Cover of at least 100%

In principle, most banks will ask you to take out outstanding balance insurance that offers cover of at least 100%. What this actually means is that at the time of death of both partners the full amount remaining on the loan will be paid by the insurance. What if you and your partner both take out 100% cover? Then you will be covered for 200%. This is a choice that is common in practice because it provides the most comfort: the surviving partner is always relieved of the entire home loan.

Though it is important to note here that since the home loan will have been repaid at that moment, the second outstanding balance insurance will not pay out any more capital if the second partner also dies. In other words, if both partners take out outstanding balance insurance, you can be sure that at least one of the two outstanding balance insurance policies will never make a payout. And since the bank will be satisfied with total cover of 100%, you can also choose a different coverage option as long as you reach 100% in total.


  • 50-50 cover

What if you and your partner have a similar salary? In that case, 50-50 cover is often chosen. If one partner dies, the outstanding balance insurance will pay out half of the remaining balance. The surviving partner will then just have to continue repaying half of the home loan. From then onwards, this widow or widower will have to meet all the fixed costs associated with the home on his or her own, such as water and electricity, but also fire insurance and property tax.


  • Alternatives

To avoid the above situation, you can take out 75-75 or 60-60 cover, for example, as a good alternative. Other ratios are also possible (such as 70-30 or 100-0). Determining factors for this are who earns what or the death cover which either partner has as part of his or her group insurance.

Want to know more?

Would you like to know more about the benefits of outstanding balance insurance for yourself and your surviving dependants? Visit our webpage for more information or make an appointment with your ING adviser.