Term life insurance for property: finding the optimal amount
29/01/2026
10
Minutes
Katrin Straub
Managing Director at nextsure
For most people, a home is the biggest financial commitment of their lives. We show you how to calculate the sum insured precisely so that your loved ones are not left facing financial ruin in the event of a claim.
The topic in brief and concise terms
Choose the sum insured at least equal to the remaining debt plus a 10-20% buffer for incidental costs.
Use decreasing insured sums in property financing to save on premiums and adapt cover to the repayment schedule.
Avoid inheritance tax through a cross-insurance arrangement, especially if you are not married.
The basis of the calculation: outstanding debt plus a safety net
The first and most important key figure for your term life insurance is the amount of your mortgage loan. If you take out a loan of 400,000 euros today, the sum insured should initially cover at least this amount. Many banks even make such cover a condition of the loan approval, especially if there is only one income or the equity is low.
But insuring only the loan amount is often not enough. A good digital guide would advise you to factor in additional cost items. Think of funeral expenses, which according to reports from 2025 average between 8,000 and 13,000 euros. In addition, there are ongoing fixed costs that do not disappear immediately when one salary is lost. A buffer of 10 to 20 per cent on top of the loan amount is therefore a solid recommendation in order to give the surviving dependants real financial room to manoeuvre.
A concrete scenario illustrates the need: A family takes out a loan of 500,000 euros. The main earner insures exactly this amount. In the event of death, the loan is repaid, but the widow or widower suddenly faces the problem of having to cover council tax, insurance and maintenance costs for the house with just one income or a small widow's pension. If the sum insured had been 600,000 euros, 100,000 euros would be available as a liquidity reserve to maintain the standard of living for the time being or secure the children's education.
Loan amount: Cover for bank liabilities.
Buffer: 10 to 20 per cent for ancillary costs and living expenses.
Additional requirement: Possible education costs for children or outstanding instalment loans.
Constant or decreasing sum insured: Which suits you?
When designing your policy, you face a fundamental decision: should the sum insured remain the same throughout the entire term, or should it decrease? For pure mortgage protection, a 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 continues to decline. A decreasing term life insurance policy reflects this trend.
There are two common models for decreasing cover. Linear reduction lowers the sum by a fixed amount each year. The annuity-linked decreasing variant, by contrast, is based exactly on your loan repayment schedule. The latter is particularly precise, as it takes into account that the interest portion of your instalment decreases while the repayment portion increases. The benefit for you is clear: as the insurer’s risk decreases, the premiums are significantly lower than for constant cover.
A constant sum insured is advisable when you want to protect not only the property but also your family more generally. If you have young children, for example, the financial need for their education remains high for many years, regardless of how much of the house has already been repaid. In this case, a constant sum offers a consistently high level of protection, but costs correspondingly more in premiums. At nextsure, we often recommend a combination or a flexible adjustment option so that you can respond to changes in your life.
Special considerations for the self-employed and entrepreneurs
Self-employed people and freelancers face stricter conditions when financing property. As this group often has no entitlements under the statutory pension insurance scheme, the statutory survivors’ pension is also not available in the event of the worst happening. That means: life insurance for death benefit purposes is often the only last line of defence between the family home and foreclosure.
If you are financing a property as an entrepreneur, you should also check whether business liabilities also need to be covered. Private assets and business liability are often more closely linked than they first appear. An insurance sum set too low could mean that the payout is enough for the bank, but that the company has to be liquidated to cover further private costs. We advise self-employed people to base the sum insured more on five times their gross annual income plus the loan amount.
A common mistake made by couples who are both self-employed is taking out a joint term life insurance policy (on two lives). It may sound inexpensive, but it has one crucial catch: the sum is paid out only once, regardless of who dies first. If both partners were to be involved in an accident at the same time, the heirs would also receive only the single sum. For comprehensive cover, especially for large loans, two separate policies are almost always the better choice.
The tax trap: Why cross-insurance is smart
One aspect often forgotten when calculating the amount is inheritance tax. If you agree a high sum insured, the payout may exceed the tax-free allowances, especially if you are not married. For unmarried couples, the allowance is only 20,000 euros. Anything above that is subject to tax, which can drastically reduce the amount actually available to repay the home.
The solution is the so-called cross-insurance. In this arrangement, Person A insures Person B’s life and is simultaneously the policyholder and beneficiary. In the event of Person B’s death, Person A receives the benefit from their own contract. As this is legally not an inheritance, but a benefit from your own insurance contract, no inheritance tax is due. This means every cent of the calculated amount goes exactly where it is needed: towards repaying your property.
This structure requires a little more attention when taking out the policy, but it is a prime example of intelligent, digital provision planning. It is not just about the bare amount of the sum insured, but about the net liquidity available in an emergency. Make sure your provider can map such arrangements online without any hassle, so you do not end up drowning in bureaucratic hurdles.
Term and flexibility: think ahead
The term of the insurance should strictly follow the term of your fixed-rate period or your expected overall repayment period. If you plan to pay off your house in 25 years, you should not take out term life insurance for only 15 years. A gap at the end of the term can be dangerous, as taking out a new policy at an older age is often very expensive or even impossible due to pre-existing conditions or higher premiums.
A modern tariff should also include guaranteed insurability options. Life rarely follows a linear path. Perhaps you are planning an extension in five years, or your family is growing. With a guaranteed insurability option, you can increase the sum insured without a new health check. This is particularly valuable if your health has deteriorated in the meantime. At nextsure, we place great importance on ensuring that such options are clearly communicated, so that your cover can grow with your plans.
In summary: the right amount is a combination of mathematical precision in relation to the remaining debt and a realistic assessment of your family’s standard of living. Use digital calculators, but also rely on expertise that looks beyond the pure loan amount. A well-chosen term life insurance policy gives you the freedom to enjoy your own home without the constant worry of the unforeseeable.
More useful links
Term life insurance: securing the loan and the family provides information on this topic.
CosmosDirekt provides information on this topic.
Literature
FAQ
Can I adjust the sum insured later?
Yes, provided your contract includes a guaranteed insurability option. This allows you to increase the sum insured following certain events such as marriage, the birth of a child or a significant increase in the loan amount without a new health assessment.
What happens to the insurance if I sell the house early?
In this case, you can either cancel the term life insurance policy or let it continue to provide cover for your family independently of the property. However, as this is purely risk cover, you will not get any money back if you cancel it.
Is term life insurance tax deductible?
Yes, the contributions can be claimed as deductible provision expenses in the tax return. However, the maximum amounts are often already used up by health and long-term care insurance, so the tax effect 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 covered. Two individual policies (ideally cross-assigned) are usually more sensible than a joint policy on two lives.
How do pre-existing conditions affect the amount of the premiums?
Pre-existing conditions often lead to risk loadings or, in severe cases, rejection. It is important to answer the medical questions truthfully. Digital processes help by allowing anonymous preliminary enquiries to be made, so that the right provider can be found without the risk of rejection.
