I have been repeatedly asked whether repayment insurance is worthwhile. This is a form of insurance that is usually used with home loans and pays when you are unable to pay the loan repayment due to something.
There are typically three reasons for this
- We are dead or permanently disabled. (At this time, the outstanding debt is typically paid off.)
- We got sick pay.
- We became unemployed. (In the latter two cases, we typically pay the monthly installment for X months.)
These insurance policies generally, but not always, provide a combination of these three areas, typically for a percentage of the loan repayment installment.
For the sake of illustration, you will find such insurance here among many.
Let us first look at unemployment insurance. I’ve written more about how it works and what to look for. For example, it is important that most of these insurances only pay if you are fired, if you came out or by mutual agreement, you did so.
Four other important things
The first is that there is a waiting time, often 3-6 months. If they are fired, they will not pay. This is to not tie you in because you already know they will be fired soon.
The second is that you have a contribution, the first two to three months you do not pay while you are unemployed. You have to solve it yourself.
The third is that you have a maximum amount of time to pay, which is usually a few months.
The fourth is that it used to be the maximum amount you pay.
In the above linked example, there is a waiting period of 90 days and a continuous employment of at least six months at the time of conclusion. The maximum reimbursement is HUF 250,000 per month or the lower installment of the loan.
The deductible is two months, with a maximum payout period of six months. So, if you become sick / unemployed after at least half a year of employment, you will pay the installment from the third month up to the ninth month if unemployment or sick pay exists.
For an example, a $ 20 million 20-year loan at a 5% interest rate costs $ 131,991 per month. A maximum of six times this is paid if you are on sick leave for nine months or receive unemployment benefits.
Let’s look at the life insurance section
I’ve written about risk life insurance many times, for example here. If you have read this article carefully and look at the linked loan repayment insurance, you should notice immediately that the B package does not include any life insurance.
Yes, the fact that the “A” package pays only and exclusively in case of an accident. That is, cancer, cerebral hemorrhage, infarction and a thousand other cases as if you had no insurance. This is very slim, as 90% of the circus deaths are not due to an accident. (Foam on the cake that disability returns only above 50%, from 51%. This is not even a terrific level of protection.)
The other, which many people do not know or do not realize, is that insurance will only pay for the current debt. That is, you will pay the same amount in the last month as you did in the first month, but instead of paying the 20 million debt according to our example, you will pay only 128 thousand for your insurance because there is so much left on your loan.
As you progress in your repayment of capital, the insurer will have less risk as you will have to pay less and less if you die or become disqualified.
How much does all this cost you?
Package A, with modest accident and unemployment insurance, is 5.236% of the installment monthly for one insured, which is $ 6,936 per month. Therefore, you will receive only one monthly accident insurance and, in the best case scenario, only $ 791,958 maximum unemployment and sickness insurance.
During the term you pay a total of 1,664,640 for insurance.
The “B” package is not even worth it, its monthly fee is 4,804 HUF, over 20 years it is 1,15 million HUF.
What would be the solution if you multiply this fee a little?
Get yourself a regular risk life insurance that pays for everything (not just an accident) and a fixed amount (if you can’t get cheaper, it’s only $ 5,000 a month and at least $ 20 million for any deaths) and set aside enough money to this is a basic requirement anyway) so you won’t need to be insured against unemployment.
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