Term life insurance for the home loan: Secure the residual debt wisely
19 Jan 2026
10
Minutes
Katrin Straub
CEO at nextsure
Purchasing a home is the largest financial commitment most people will make in their lives. Term life insurance ensures that in the event of an emergency, your surviving relatives won't have to bear the burden of repayment and can keep the 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 aligns with the decreasing debt level.
Use cross-insurance (partners insuring each other) to receive the full insurance amount completely tax-free in the event of a claim.
Prefer independent term life insurance over bank-bound residual debt insurance to save costs and remain flexible.
The existential significance of residual debt insurance
Real estate financing is a marathon, not a sprint. Over a period of 20 to 30 years, a lot can happen. If you, as the borrower, pass away, the burden of debt transfers to your heirs. This means: Either the bereaved can continue to service the monthly instalments, or the bank liquidates the property. Term life insurance (RLV) is your financial airbag. It is not a savings plan but a pure risk protection, making it extremely affordable compared to other types of insurance.
Statistics from the Association of German Insurers (GDV) from the year 2025 show that term life insurance is one of the most underestimated precautionary instruments. Many couples rely on dual incomes, but if one part falls away, the financial house of cards collapses. Protection is especially essential for young families and the self-employed, as state protection through the statutory pension insurance (Large Widow's Pension) often covers only a fraction of the previous net income.
An example: A couple is financing a house with a loan of 400,000 euros. After five years, the remaining debt is still 350,000 euros. If a partner dies without RLV, the survivor must bear the full instalment alone. With term life insurance, the insurance sum is paid out, the loan is paid off at once, and the monthly burden drops to zero. The house is secure.
Avoidance of emergency sales below market value
Securing the standard of living for children and partner
Financial freedom in an emotional exceptional situation
Constant vs. decreasing insurance sum: What suits your loan?
When securing a home loan, you face the choice between two models: a constant or a decreasing insurance sum. The decision largely depends on your repayment plan and your additional security requirements. At nextsure, we often recommend the decreasing variant if the primary concern is to cover bank debts.
The constant insurance sum remains the same throughout the entire term. If you secure 500,000 euros, your dependants will receive this amount, regardless of whether you pass away in the first or twentieth year. This makes sense if you also want to secure your children's education or your partner's living expenses in the long term, in addition to the loan. However, the premiums are higher here, as the insurer's risk does not decrease over time.
The decreasing insurance sum (often referred to as the remaining debt variant) adjusts to your loan progress. Since you repay monthly, your remaining debt with the bank decreases continuously. In parallel, the payout amount of the insurance also decreases. This has a crucial advantage: the premiums are significantly lower, as the insured risk decreases each year. A distinction is made between linear decreasing sums and annuity decreasing sums, with the latter most accurately representing the progress of a traditional bank loan.
Do not calculate the insurance sum too tightly. We recommend planning for a buffer of about 10 to 20 percent in addition to the pure remaining debt for ancillary costs, funeral costs, or a transitional phase. 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 residual debt insurance
Banks often offer a so-called residual debt insurance (RSI) directly when taking out a loan. At first glance, this seems convenient, but caution is advised. A classic term life insurance, like the one you find at nextsure, is usually the superior choice. The main difference lies in flexibility and cost.
Residual debt insurances from banks are often financed by a single premium, which is added to the loan amount and accrues interest. This makes the loan unnecessarily expensive. Moreover, in these contracts, the bank is usually registered as the beneficiary. If the borrower dies, the money flows directly to the bank. With an independent term life insurance, you decide who receives the money. Your survivors can then decide for themselves whether to immediately repay the loan or use the funds for other urgent expenses first.
Feature | Independent Term Life Insurance | Residual Debt Insurance (Bank) |
|---|---|---|
Cost | Affordable monthly premiums | Often expensive single premium (accrues interest) |
Flexibility | Sum and term freely selectable | Fixed to the loan |
Beneficiaries | Relatives (freely selectable) | Usually directly the bank |
Health Check | Comprehensive but fair | Often simplified but with waiting periods |
Portability is also important. If you refinance your loan or change banks, your independent term life insurance remains intact. A bank-tied RSI often requires a laborious cancellation or adjustment, which can lead to financial losses. At nextsure, we focus on independence: your protection should be aligned with your life, not your bank.
The Professional Tip: Cross-Insurance for Tax Avoidance
Inheritance tax is often neglected in advisory discussions. If you secure a large insurance sum, the tax office may take action if the tax-free allowance is exceeded. This is particularly the case for unmarried couples, where the allowance is extremely low at just €20,000. However, even for married couples, it can be tight with very large loan amounts and simultaneous inheritance of property.
The solution is the so-called cross-insurance. Instead of each insuring themselves, you insure one another. The principle works as follows: Partner A is the policyholder and premium payer, but the insured risk is Partner B. If Partner B passes away, Partner A receives the insurance sum. Since Partner A is the contract holder, the payout is legally not considered an inheritance but rather a benefit from their own contract. Thus, the money is received completely tax-free.
This structure is completely legal and is strongly recommended by experts to avoid jeopardising liquidity through tax payments in the event of a claim. At nextsure, we support you in digitally and legally securely mapping out this arrangement. It’s a small administrative difference when applying, but it can save tens of thousands of euros in a claim situation. Make sure that the premiums are actually debited from the account of the respective policyholder to ensure tax recognition beyond doubt.
Common Mistakes in Securing Home Construction
Despite the clear benefits, mistakes often creep into the insurance process that can become costly in an emergency. One of the most common mistakes is the incorrect term. Ideally, the insurance should last as long as the interest rate fixation or the anticipated repayment period of the loan. If the insurance ends five years before the loan, a dangerous coverage gap arises.
Another important aspect is the post-insurance guarantee. Life rarely follows a linear path. You might increase the loan amount for an extension or welcome more children into your family. Good plans allow you to increase the insured sum in such events without a new health assessment. As your health may deteriorate over the years, this option is incredibly valuable.
Don't underestimate the smoker issue either. Premiums for smokers are significantly higher than for non-smokers. If you are a non-smoker when applying but start smoking later, you must inform the insurer. Likewise, if you quit smoking, you can request a reclassification to the more favourable non-smoker tariff after a certain period (usually 12 months). At nextsure, we ensure you can make these adjustments without hassle.
Finally, you should answer the health questions in the application with utmost care. Incomplete information can lead to the insurer refusing payment in the event of a claim. Thanks to digital processes, we at nextsure can clarify many questions in advance and help you prepare your history correctly, ensuring your protection stands on a solid foundation.
Why nextsure is the right partner for your insurance
Insurance must be simple, transparent, and fast today. No one wants to struggle through pages of paperwork when it comes to the security of their own family. nextsure combines the expertise of a traditional broker with the speed of a modern tech platform. We have digitalised the process of term life insurance without losing sight of personal advice.
We take the complexity off your hands. We compare the rates on the market for you and pay attention not only to the price but especially to the fine print such as the aforementioned guaranteed insurability or flexibility in repayment adjustment. Based in Hamburg, we understand the needs of modern professionals, self-employed individuals, and families who are looking for a solution that fits their lives.
With nextsure, you not only secure a residual debt but also create a foundation for the future of your loved ones. Our digital guide walks you through the necessary steps, explains technical terms in a comprehensible language, and ensures that you receive optimum protection in no time. This way, you can focus again on what truly matters: enjoying your new home.
More useful links
Term life insurance: Securing the loan and the family offers information on this topic.
Deutsche Bundesbank provides information on this topic.
FAQ
Is accident insurance sufficient to secure the loan?
No, accident insurance only pays out in the event of death or disability due to an accident. However, most deaths in Germany result from illnesses (e.g., cardiovascular diseases or cancer). Only term life insurance covers both causes.
Do I need to see a doctor to complete this?
In most cases, answering health questions in the online application is sufficient. Only for very high insurance sums (often starting at €500,000) or pre-existing conditions may a medical examination or a current report from a general practitioner be required.
What is the difference between gross and net contribution?
The gross premium is the maximum possible contribution. The net premium (payment contribution) is what you actually pay, as the insurer offsets any profits directly against the contribution. With reputable insurers, the net premium remains stable over the duration.
Can we take out a joint insurance policy 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 (crossed), as this is more advantageous for tax purposes and provides individual coverage for both partners.
What should the ideal insurance amount be?
As a general rule of thumb, the current remaining debt plus a 10-20% buffer for ancillary costs should be considered. If children live in the household, the amount should additionally be three to five times the gross annual income to maintain the standard of living.
Is the insurance coverage valid worldwide?
Yes, a standard term life insurance policy generally provides worldwide coverage, regardless of where the death occurs. The only important factor is that you have a residence in Germany at the time of application.
