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Does credit protection insurance pay if I become unemployed?

In short

Does credit protection insurance pay if I become unemployed? Only if the unemployment module is in your contract and you lose your job through no fault of your own. Then it pays the loan instalment after an excess period of usually two to three months, for 12 to 24 months per case at most. The self-employed, civil servants, probation periods and resigning yourself are often excluded.

Does credit protection insurance pay if I become unemployed?

What it costs

Publicly documented cases and published terms of German credit protection insurance.

ExampleTypical range
Instalment loan EUR 18,000, eight years, without insuranceEUR 256.13 a month, effective annual rate 8.49 percent
The same loan with credit protection insuranceEUR 330.46 a month, effective annual rate 16.89 percent
Module for incapacity to work and unemployment, single premiumEUR 4,072.58
Extra cost over the term including interestEUR 7,135.83
Unemployment benefit in sample termsexcess 2 to 3 months, then 12 months per case, 24 to 36 months in total

The figures come from a case published by the consumer advice centre and from the terms of

individual banks; they do not apply to every loan.

The savings calculation in the worked example is a guide value from quoting practice.

What your contract pays is set out in its insurance terms.

Worked example

Employee, instalment loan EUR 18,000, instalment EUR 256

What the unemployment cover delivers at best, compared with your own savings.

Excess period of 3 months, instalments paid yourselfEUR 768
Then paid by the insurer, 12 months at mostEUR 3,072
Single premium for incapacity and unemployment in the documented caseEUR 4,072.58
Savings for the same 15 instalmentsEUR 3,840

Even in the best case the unemployment cover pays fewer instalments here than the module costs, although that module also covers incapacity to work. Savings of about 15 instalments protect you better, belong to you and also work for the self-employed and during probation.

When the unemployment cover applies

Credit protection insurance, called Restschuldversicherung in Germany, often covers death only. Unemployment is a separate module, usually bundled with incapacity to work, and it costs much more. If it is not in your contract, nothing is paid when you lose your job.

If it is included, three conditions usually apply: you were employed and paying German social insurance, you did not cause the dismissal yourself, and you are registered as unemployed with the Agentur für Arbeit and receive unemployment benefit (Arbeitslosengeld).

SituationDoes the insurance pay?
Redundancy after the waiting periodusually yes, after the excess period
Dismissal in the first months after the loan startsusually no, the waiting period is still running
You resign or sign a termination agreementusually no
Dismissal during probationoften excluded
Fixed-term contract endsoften excluded
Self-employed, orders dry upno, the self-employed usually cannot take out this cover
Unemployed longer than the maximumno, after that you pay again yourself

Waiting period, excess period, maximum: three gaps

The waiting period runs from the start of the loan. If you lose your job during it, you get nothing, even if the unemployment lasts beyond it. Published terms show three and six months.

The excess period starts again with every new spell of unemployment. In the examples it lasts two to three months, and you pay those instalments yourself. If you find work again after three months, you often receive nothing at all.

The maximum limits payments to 12 or 24 months per case. Long-term unemployment, where money really gets tight, stays uncovered.

What the cover costs and what it delivers

The premium is usually a single premium added to the loan, so you pay interest on the insurance. In a case documented by the German consumer advice centre, the module for incapacity to work and unemployment cost EUR 4,072.58 on a loan of EUR 18,000 over eight years, with death cover adding EUR 967.69.

In its 2023 market review, the German financial supervisor BaFin found that for most insurers less than 3 percent of premiums flowed back to customers as benefits.

What the state pays anyway

As an employee in Germany you are covered by statutory unemployment insurance. Unemployment benefit is 60 percent of your standardised net pay, 67 percent with a child. The gap to your old net pay is usually smaller than the full loan instalment.

If you resign without good reason, the Agentur für Arbeit usually imposes a blocking period (Sperrzeit) of twelve weeks. In that case the credit protection insurance usually does not pay either.

When you do not need the module

If you are self-employed or a civil servant, the cover is often unavailable or useless. If you have savings worth a few instalments, they cover exactly the excess period in which the insurance does not pay.

The module can make sense for employees without savings in an insecure job, if waiting and excess periods are short and the price is shown separately. For death cover, your own term life insurance is usually cheaper.

Step by step

  1. Check in the loan offer whether unemployment is covered at all and what that part costs.
  2. Read the waiting period, excess period and maximum in the terms.
  3. Compare the exclusions with your situation: probation, fixed term, self-employment.
  4. Work out how many monthly instalments the premium is worth.
  5. Use the week after signing the loan to compare offers or decide against the cover.

Checklist

  • Unemployment module expressly in the contract
  • Waiting period from loan start of three months at most
  • Excess period per case of two to three months at most
  • Maximum per case and over the term known
  • No exclusions that match your job
  • Premium shown separately and not financed through the loan

Common mistakes

  • Assuming every credit protection policy pays when you lose your job
  • Signing up as self-employed or civil servant although unemployment cannot be insured
  • Resigning or signing a termination agreement and hoping the instalments will be paid
  • Financing the single premium and paying interest on it
  • Not reporting unemployment at once and missing deadlines in the terms

Questions and answers

Frequently asked

Does it pay if I am dismissed during probation?

Often not.

Many terms expressly exclude employment during the probation period.

How long does credit protection insurance pay during unemployment?

In published terms, 12 to 24 months per case at most and usually 24 to 36 months over the whole

term.

Does it pay during short-time work (Kurzarbeit)?

Short-time work is not unemployment.

In the terms reviewed, payment requires unemployment benefit.

Do I have to take it out to get the loan?

For consumer loans, the insurance may only be signed one week after the loan agreement since 2025.

You decide separately and can say no.

Can I withdraw from the insurance?

Yes.

According to the consumer advice centre within 14 days of signing,

and within 30 days for death cover.

What is cheaper than credit protection insurance?

For unemployment your own savings, for death a term life insurance,

for illness an occupational disability insurance.

Sources

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