Term life insurance for real estate: Finding the optimal amount
29 Jan 2026
10
Minutes
Katrin Straub
CEO at nextsure
A home is the largest financial commitment most people make in their lives. We show you how to calculate the exact insurance amount so that your loved ones are not left facing financial ruin in the event of an emergency.
The topic in brief and concise terms
Choose the insurance amount to be at least equivalent to the remaining debt plus a buffer of 10-20% for additional costs.
Use decreasing insurance sums for property financing to save on premiums and adjust coverage to match repayment.
Avoid inheritance tax through a cross-insurance policy, especially if you are not married.
The basis of the calculation: Outstanding balance plus safety net
The first and foremost metric for your term life insurance is the amount of your mortgage loan. If you are taking out a loan of 400,000 euros today, the insurance coverage should initially cover at least this amount. Many banks even make such coverage a condition for granting the loan, especially if there is only one income or if equity is low.
However, insuring solely the loan amount often falls short. A smart digital guide would advise you to factor in additional cost factors. Consider the funeral costs, which, according to reports from 2025, average between 8,000 and 13,000 euros. Additionally, ongoing fixed costs do not immediately disappear due to the loss of a salary. A buffer of 10 to 20 percent on the loan amount is therefore a solid recommendation to provide the dependants with genuine financial leeway.
A specific scenario illustrates the necessity: A family takes out a loan of 500,000 euros. The main earner insures precisely this amount. In the event of death, the loan is paid off, but the surviving spouse suddenly faces the challenge of covering property taxes, insurance, and maintenance costs for the house with just one salary or a modest widow's pension. If the insurance coverage had been 600,000 euros, 100,000 euros would be available as a liquidity reserve to maintain the standard of living temporarily or ensure the children's education.
Loan amount: Coverage of bank liabilities.
Buffer: 10 to 20 percent for incidental costs and living expenses.
Additional needs: Possible educational costs for children or outstanding installment loans.
Constant or decreasing sum insured: What suits you?
When designing your policy, you face a fundamental decision: Should the sum insured remain constant over the entire term or decrease? For pure property protection, the decreasing sum insured is often the more economically sensible choice. As you repay your loan monthly, the financial risk for the bank and your family steadily decreases. A decreasing term life insurance policy reflects this progression.
There are two common models for decreasing sums. Linear reduction decreases the sum by a fixed amount each year. The annuity-related variant is precisely aligned with your loan's repayment plan. The latter is especially precise, as it takes into account that the interest portion of your rate decreases and the repayment portion increases. The advantage for you is clear: As the risk for the insurer decreases, the premiums are significantly cheaper than with constant coverage.
On the other hand, a constant sum insured is advisable if you want to secure your family in general as well as the property. If, for example, you have young children, the financial need for their education remains high over many years, regardless of how much of the house has already been paid off. In this case, the constant sum offers a consistently high level of protection, but costs more in premiums. At nextsure, we often recommend a combination or a flexible adjustment option to be able to respond to changes in life.
Special features for freelancers and entrepreneurs
Self-employed individuals and freelancers face stricter conditions when it comes to property financing. Since this group often has no claims from the statutory pension scheme, statutory survivor benefits are also omitted in serious cases. This means: Life insurance is often the only firewall between the home and foreclosure.
If you, as a business owner, are financing a property, you should also check whether business liabilities need to be covered as well. Personal assets and business liability are often more closely linked than they might first appear. An insurance sum set too low could lead to a situation where the payout is enough for the bank, but the company must be liquidated to cover additional private costs. We advise self-employed individuals to orient the insurance sum more towards five times the gross annual income plus the credit amount.
A common mistake among couples who are both self-employed is taking out a joint life insurance policy (on two lives). It may sound cost-effective, but it has a crucial drawback: The sum is paid out only once, regardless of who dies first. If both partners have an accident at the same time, the heirs receive only the single sum. For comprehensive coverage, especially with large loans, two separate contracts are almost always the better choice.
The Tax Trap: Why Cross-Insurance is Wise
One aspect that is often overlooked when calculating the amount is inheritance tax. If you agree on a high insurance sum, this can exceed the exemption limits upon payout, especially if you are not married. For unmarried couples, the exemption limit is only 20,000 euros. Anything above this is subject to taxation, which can drastically reduce the effective sum available for repaying the house.
The solution is the so-called cross-insurance. Person A insures the life of Person B and is simultaneously the policyholder and beneficiary. In the event of Person B's death, Person A receives the benefit from their own contract. Since this is legally not considered an inheritance, but rather a benefit from one's own insurance policy, no inheritance tax is incurred. Thus, every cent of the calculated sum reaches where it is needed: in the repayment of your property.
This structure requires a bit more attention when taking out the policy, but it is a prime example of intelligent, digital provident planning. It’s not just about the bare figure of the insurance sum, but about the net liquidity available in case of emergency. Make sure your provider can easily represent such arrangements online without you getting caught up in bureaucratic obstacles.
Term and Flexibility: Think About the Future
The duration of the insurance should be strictly aligned with the term of your interest rate commitment or the expected total repayment. If you plan to pay off your house in 25 years, you should not take out the term life insurance for just 15 years. A gap at the end of the term can be dangerous, as taking out new insurance at an older age can be very expensive or even impossible due to pre-existing conditions or increased premiums.
A modern policy should also include guaranteed options for increasing cover. Life rarely follows a linear path. You might plan an extension in five years or your family may grow. With an option to increase cover, you can raise the insurance sum without a renewed health check. This is particularly valuable if your health condition has deteriorated in the meantime. At nextsure, we prioritise clearly communicating these options so that your protection can grow with your plans.
In summary, the right amount is a combination of mathematical precision regarding the remaining debt and a realistic assessment of your family's standard of living. Use digital calculators, but also trust the expertise that looks beyond the mere loan sum. A well-chosen term life insurance provides you with the freedom to enjoy your home without the constant worry of the unforeseen.
More useful links
Term life insurance: Protect your loan and family offers information on this topic.
CosmosDirekt provides information on this topic.
FAQ
Can I adjust the insured sum later?
Yes, if your contract includes a guaranteed increase option. This allows you to raise the amount without a new health examination for certain events, such as marriage, the birth of a child, or a significant increase in the loan.
What happens to the insurance if I sell the house early?
In this case, you can either cancel the term life insurance or keep it active to protect your family independently from the property. However, as it is purely a risk protection, there is no refund upon cancellation.
Is term life insurance tax-deductible?
Yes, the contributions can be claimed as precautionary expenses on the tax return. However, the maximum amounts are often already exhausted due to health and long-term care insurance, so the tax impact is usually limited.
Do both partners need their own insurance?
If both contribute to the household income or take care of the children, both should be secured. Two individual policies (ideally crosswise) are usually more sensible than a joint insurance for two lives.
How do pre-existing conditions affect the amount of the premiums?
Pre-existing conditions often lead to risk surcharges or, in severe cases, rejection. It is important to answer the health questions truthfully. Digital processes assist in making anonymous preliminary inquiries to find the right provider without the risk of rejection.
