Constant or decreasing coverage?
Depending on the purpose of insurance and your wishes regarding the distribution, you can choose constant or decreasing coverage form. If an insurance of €100,000 has constant coverage, then your relatives get paid exactly that sum if you die within the term of the insurance. If the insurance coverage is decreasing, the amount payable decreases in the course of time. This is, for example, interesting if the distribution is parallel to an ever declining mortgage debt..
There are two ways in which the coverage may decrease. In alineardecreasing coverage, the coverage of an insurance policy of €300,000 with a maturity of 30 years, each year decreases by €10,000 (1/30 of €300,000). If you opt for anannuitydecreasing coverage, the insured amount decreases in the same way as an annuity mortgage. Did the mortgage debt decrease during the term to half the original amount? Then the coverage of the life insurance is also about half of the original sum insured.
If you take out a mortgage, it may be that the bank makes demands on the rate at which the decreasing annuity insurance is based. An annuity rate of 6% is parallel to a mortgage debt on which the interest rate would be 6%. When you choose a higher rate than the mortgage interest rate, the coverage of the insurance decreases slightly slower than the mortgage debt. Often the extra premium is low for this.
If you sign up for life insurance because you’re taking on a mortgage, it’s important to make sure whether you are entitled to preliminary coverage. With the purchase of a home you enter into a big commitment, which you may not be able to fulfil if you should die before you are actually the owner. In a preliminary coverage the insurer pays out even if you die in the time between the acceptance and the effective date of the policy. Apart from the question of whether you are entitled to temporary coverage, it is also important to note the following:
- How much are you entitled to with Preliminary Coverage?
- When does your right to Preliminary Coverage start?
- Does getting Preliminary Coverage depend on your age?
- Is there only Preliminary Coverage if you die by accident or is there coverage in any case?