Whether it’s a sudden job loss, a serious illness or a death: for many people, an unforeseeable turn in life can lead to an enormous financial challenge or even ruin. This is especially true if those affected have just realized their dream of owning their own home with a loan or bought a new car.
Residual credit insurance (RKV) is available to protect such debts in the event of unforeseen unemployment, illness, accident or death. It insures the outstanding loan installments. A recent study by AXA Partners shows that RKV is an important security measure for the 500 borrowers surveyed online to cushion unforeseeable life events and minimize the financial burden in times of crisis. For half of the respondents, emotional reasons are the most important motivation for taking out a loan (30.2%) – even before a mandatory conclusion for the loan (17%) or better loan conditions (12.3%).
Excessive costs and lack of information as hurdles to completion
The RKV is also known among those who are not insured. However, the reasons why people do not take out the insurance are often too high costs (34.7%), insufficient information (23.5%) and their own financial stability (16.4%) – even though more than half of those surveyed do not feel adequately protected against health, financial and crisis risks. 40 percent of those surveyed without income protection were not even aware of the insurance concept. Income protection closes the income gap that arises in insured events such as involuntary unemployment or serious illness. For those who did know the concept, the expected costs, a perceived risk as too low or a lack of information spoke against taking out the insurance. The new legislation increases the importance of income protection as an alternative to residual credit insurance.
Change in law polarizes
In the future, the new legislation will significantly change the way credit protection insurance is taken out. In common industry practice, financial institutions and insurers have often linked the loan and insurance contracts. This is also shown by the survey: 87 percent of respondents took out their credit protection insurance together with the loan, mostly directly with the bank or dealer. From January 1, 2025, the legislator now provides for a seven-day waiting period between taking out a loan and taking out credit protection insurance. According to the survey, the “cool-off phase”, intended as a consumer protection measure, is polarizing among borrowers: many respondents expect this measure to result in additional work and feel incapacitated. For example, a good one in four of 500 respondents see the new legislation as negative (23%), as the background to the new regulation is unclear and additional work is created by taking out insurance separately and subsequently. A good one in three sees the new legislation as positive (35%), as it gives more time to think about it and to obtain further information before taking out insurance.
New law as a catalyst for digital transformation
One thing is certain: banks and insurance companies will have to rethink their customer journey in light of the change in the law. In order to offer effective income and debt protection even with the new cool-off period, providers must reduce the hurdles to taking out insurance retrospectively to a minimum and quickly dispel concerns about additional work. Insurers also need to rethink their own contact channels, as personal advice is still very important to those surveyed – but many would like to avoid the trip to the bank. After all, almost every second person surveyed prefers a purely digital closing process (47%). If the industry interprets the signs correctly, the legislation can prove to be a strong catalyst for digital transformation. However, it must use the great optimization potential for its own closing processes itself. And new product categories are also gaining in importance as a result of the reform: For example, it may well be worthwhile for insurers to focus more on income protection in the future. This model is (still) less well known, but it is still a strong alternative to residual credit insurance, which currently has a rather negative connotation. A third of those surveyed would take out both.
