Term life insurance for your home loan: protecting the outstanding balance wisely
19.01.2026
10
Minutes
Katrin Straub
Managing Director at nextsure
Buying a house is the biggest financial commitment most people will make in their lives. A term life insurance policy ensures that, in the event of the worst happening, your dependants do not have to bear the burden of repayment and can keep their home.
Topics on this page
The topic in brief and concise terms
A decreasing sum insured is the most cost-effective way to secure a home loan, as it follows the declining debt balance.
Use cross-insurance (partners insure each other) to receive the sum insured completely tax-free in the event of a claim.
Prefer independent term life insurance over bank-linked residual debt insurance to save costs and remain flexible.
The vital importance of residual debt insurance
Financing a property is a marathon, not a sprint. A lot can happen over a period of 20 to 30 years. If you die as the borrower, the debt burden passes to your heirs. That means: either the surviving dependants can continue to service the monthly instalments, or the bank realises the property. Term life insurance (TLI) is your financial airbag. It is not a savings product, but pure risk protection, which makes it extremely affordable compared with other types of insurance.
Statistics from the German Insurance Association (GDV) from 2025 show that term life insurance is one of the most underestimated forms of provision. Many couples rely on a double income, but if one part falls away, the house of cards that is the financing collapses. This protection is especially essential for young families and the self-employed, as the state support provided by statutory pension insurance (widows' pension) often covers only a fraction of the previous net income.
An example: A couple finances a house with a loan of 400,000 euros. After five years, the remaining debt is still 350,000 euros. If one partner dies without TLI, the surviving partner has to shoulder the full instalment alone. With term life insurance, the sum insured is paid out, the loan is repaid in one go and the monthly burden drops to zero. The house is secure.
Avoiding forced sales below market value
Securing the standard of living for children and partner
Financial freedom in an emotionally exceptional situation
Constant vs decreasing sum insured: Which suits your loan?
When securing a home loan, you face a choice between two models: a constant or decreasing sum insured. The decision depends largely on your repayment plan and any further cover you may want. At nextsure, we often recommend the decreasing option when the main aim is to cover the outstanding bank debt.
The constant sum insured remains the same throughout the entire term. If you insure €500,000, your dependants will receive this amount whether you die in the first year or the twentieth. This makes sense if, in addition to the loan, you also want to provide long-term cover for your children’s education or your partner’s living costs. However, premiums are higher here because the insurer’s risk does not decrease over time.
The decreasing sum insured (often referred to as the outstanding balance option) adapts to the course of your loan. As you repay monthly, your outstanding balance with the bank falls continuously. At the same time, the policy payout also decreases. This has a key advantage: premiums are significantly lower, because the insured risk declines every year. A distinction is made between linearly decreasing sums and annuity-decreasing sums, with the latter most accurately reflecting the pattern of a classic bank loan.
Do not calculate the sum insured too tightly. We recommend factoring in a buffer of around 10 to 20 per cent on top of the pure outstanding balance for incidental costs, funeral expenses or a transitional period. This ensures that your family is not only debt-free, but also has liquid funds for a fresh start.
Term life insurance vs. the bank’s loan protection insurance
Banks often offer what is known as residual debt insurance (RSV) directly when the loan is taken out. At first glance, this seems convenient, but caution is advised here. A classic term life insurance policy, as you can find at nextsure, is the better choice in most cases. The main difference lies in flexibility and cost.
Bank residual debt insurance is often financed by a one-off premium that is added to the loan amount and charged interest. This makes the loan unnecessarily expensive. In addition, the bank is usually entered as the beneficiary in these contracts. If the borrower dies, the money goes directly to the bank. With a stand-alone term life insurance policy, you decide who receives the money. Your dependants can then decide for themselves whether to repay the loan immediately or first use the money for other urgent expenses.
Feature | Stand-alone term life insurance | Residual debt insurance (bank) |
|---|---|---|
Cost | Affordable monthly premiums | Often a more expensive one-off premium (interest charged as well) |
Flexibility | Sum insured and term freely selectable | Rigidly tied to the loan |
Beneficiaries | Relatives (free choice) | Usually the bank directly |
Medical underwriting | Comprehensive, but fair | Often simplified, but with waiting periods |
Portability is also important. If you refinance your loan or change banks, your stand-alone term life insurance remains in place. A bank-tied RSV often has to be cancelled or adjusted with difficulty, which can involve financial losses. At nextsure, we focus on independence: your protection should be based on your life, not on your lender.
The pro trick: cross-insurance for tax avoidance
Inheritance tax often gets little attention in advisory meetings. If you secure a high sum insured, the tax office can step in if the allowances are exceeded. This allowance is extremely low at just EUR 20,000, especially for unmarried couples. But even for married couples, things can become tight where very high loan amounts are combined with an inherited property.
The solution is the so-called cross-insurance. Instead of each person insuring themselves, you insure each other. The principle works like this: Partner A is the policyholder and premium payer, but the insured risk is Partner B. If Partner B dies, Partner A receives the insurance sum. Since Partner A is the policyholder, the payout is not legally treated as an inheritance, but as a benefit under their own policy. The money therefore flows completely tax-free.
This structure is entirely legal and is strongly recommended by experts to ensure liquidity is not put at risk by tax payments in an emergency. At nextsure, we support you in setting up this arrangement digitally and in a legally compliant way. It is a small administrative difference when applying, but one that can save tens of thousands of euros in the event of a claim. Make sure that the premiums are actually debited from the account of the respective policyholder to ensure unequivocal tax recognition.
Common mistakes in securing a house build
Despite the clear advantages, mistakes often creep into cover arrangements that can become costly in an emergency. One of the most common mistakes is the wrong term. Ideally, the policy should run for as long as the fixed-interest period or the loan’s expected repayment term. If the policy ends five years before the loan, a dangerous gap in cover arises.
Another point is the guaranteed insurability option. Life rarely follows a straight line. You may increase the loan amount for an extension, or another child may be on the way. Good plans allow you to increase the sum insured in such situations without a fresh health check. As your health can deteriorate over the years, this option is worth its weight in gold.
Do not underestimate the smoking issue either. Premiums for smokers are significantly higher than for non-smokers. If you are a non-smoker when you apply but later start smoking, you must notify the insurer. Conversely, if you give up smoking, after a certain period of time (usually 12 months) you can request a move to the cheaper non-smoker rate. At nextsure, we make sure you can make such adjustments easily.
Finally, you should answer the health questions in the application with the utmost care. Incomplete information can lead to the insurer refusing to pay a claim. Thanks to digital processes, at nextsure we can clarify many questions in advance and help you prepare your history correctly, so that your cover rests on a solid foundation.
Why nextsure is the right partner for your cover
Insurance today must be simple, transparent and fast. Nobody wants to struggle through pages of paper forms when it comes to protecting their family. nextsure combines the expertise of a traditional broker with the speed of a modern tech platform. We have digitised the term life insurance process without losing sight of personal advice.
We take the complexity off your hands. We compare the tariffs on the market for you and focus not only on the price, but above all on the fine print, such as the aforementioned guaranteed insurability options or flexibility in adjusting repayments. Based in Hamburg, we understand the needs of modern professionals, self-employed people and families who are looking for a solution that adapts to their lives.
With nextsure, you are not only insuring an outstanding debt, but also creating a foundation for the future of your loved ones. Our digital guide leads you through the necessary steps, explains technical terms in clear language and ensures that you receive the optimal protection in the shortest possible time. That way, you can get back to focusing on what really matters: enjoying your new home.
More useful links
Term life insurance: protecting your loan and family provides information on this topic.
Deutsche Bundesbank provides information on this topic.
Literature
FAQ
Is accident insurance sufficient to secure the loan?
No. Accident insurance only pays out in the event of death or disability resulting from an accident. However, most deaths in Germany are caused by illness (e.g. cardiovascular disease or cancer). Only term life insurance covers both causes.
Do I need to see a doctor for the completion?
In most cases, answering the health questions in the online application is sufficient. Only for very high sums insured (often from €500,000 upwards) or pre-existing conditions may a medical examination or a current report from your GP be required.
What is the difference between gross and net contribution?
The gross premium is the maximum possible premium. The net premium (amount payable) is what you actually pay, as the insurer directly offsets the profits generated against the premium. With solid insurers, the net premium remains stable over the term.
Can we take out joint insurance for both partners?
There are so-called 'joint life' policies. However, these only pay out once, upon the first death. We usually recommend two separate policies (cross-owned), as this is more tax-efficient and individually protects both partners.
What should the sum insured ideally be?
As a rule of thumb: the current outstanding balance plus a 10-20% buffer for ancillary costs. If children live in the household, the sum should additionally amount to 3 to 5 times the gross annual income in order to secure the standard of living.
Does the insurance cover apply worldwide?
Yes, a standard term life insurance policy generally offers worldwide cover, regardless of where the death occurs. The only important thing is that you have your place of residence in Germany when you apply.
