Personal risks invariably consist of a divestment risk or risk of giving up owner-occupation.
Possible causes are:
- Loss of income / lower income
- Death
- Disability / inability to work
- Early retirement
- Unemployment
- Divorce
- Increased need for funds (to cover corporate loss, costly medical operation etc.)
Hedging options are classified as:
- Risk protection
- National insurance (Occupational Pensions Act)
- Private pension plan (pillars 3a and 3b)
- Whole-life insurance policy
- Life insurance savings plan
- Combination of risk protection and amortisation
- Risk protection through private pension plan
- for indirect amortisation by accumulating the insurance payments in a separate fund from which the mortgage can then be repaid in a lump sum in due course
- Advantages
- Deductibility of premiums (pillar 3a)
- Interest on debt continues to be deducted
- Special tax rate for insurance payment, separate from other income
- using the insurance cover to pay off the mortgage
- Customary: amortisation of 2nd mortgage
- Less common: amortisation of all mortgage debts
- Amortisation policy, possibly with exemption from payment of premiums in the event of incapacity for work
- Risk protection through private pension plan
Further Information
- Financing of owner-occupied property / risk protection and amortisation
- Some lenders require the borrower to take out life insurance as a condition for financing (whole-life insurance policy, poss. life insurance savings plan) and to assign the conditional insurance claim or award of beneficiary status
- Protection of spouse from property divestment according to the principle of preference
