Borrow money responsibly
Borrowing money is a big responsibility, and it also entails the necessary risks. When you take out a loan , you also have to pay it back. You usually do this in monthly installments. If everything goes well, the loan will be repaid over time. Of course it can always happen that an unexpected situation occurs. You become incapacitated for work, lose your job or die. Events with often the same far-reaching consequences: financial problems that you are not waiting for. Fortunately, you can also properly insure this loan when taking out a loan. That is borrowing money responsibly.
Insuring incapacity for work
There are risks associated with taking out financing. For example, what happens to your income if you become incapacitated for work? And what are the consequences for the repayment of a loan?
Fall in income due to incapacity for work
If you become incapacitated for work, your income will drop. If you are employed, the employer will legally continue to pay for the first two (sick) years. The employer may never pay more than 170% of the most recently earned wages, spread over these two years. Incidentally, the employer is not obliged to pay 170% of the last wage earned. Normally, he will immediately apply the minimum of 70% of the last salary earned in the event of illness. That is a drop in income of 30%.
If you are not better after these two years of illness, you can be declared (partially) incapacitated for work. Depending on the rejection percentage, you will end up in the IVA (completely rejected) or WGA (return to work for partially disabled people). If you fall under the IVA, you will receive 75% of the most recently earned wages. However, it is no longer common for someone to be declared fully and permanently incapacitated for work immediately. With a WGA wage-related benefit, you receive 70% of the last wage earned. Visit rijksoverheid.nl for more information.
As you can see, your income can drop significantly if you become incapacitated for work. If you do not want to run the risk that you would no longer be able to pay off your loan at that time, you can insure the disability. Disability insurance linked to a loan pays the insured amount directly to the lender. The insured amount will normally be the same as the monthly installment, unless additional cover is chosen. The advisor will discuss your personal situation and based on this conversation and various calculations, an insured amount is advised.
If you become incapacitated for work and want to make use of the disability insurance, you will often have to deal with a deductible period. Your benefit will only start after the agreed deductible period. Sometimes this waiting period can have an effect on the premium you pay. Many insurers use 30 days or 365 days.
Some consumers take little account of the risks that a loan can entail. That is unwise. In recent years, the slogan has been used in the Boston for a reason: 'Pay attention! Borrowing money, costs money.' One of the possible risks after taking out a loan is unemployment. What does it do to your income when you lose your job? How do you deal with that? You can often apply for unemployment benefits - the duration of this depends on your employment history. That is a minimum of 3 months and a maximum of 38 months. You can quickly see how much employment history you have built up on the UWV website.
Loss of income due to unemployment
Unemployment decreases your income. The first 2 months with unemployment benefit you will receive 75% of your daily wages, the remaining month (s) is 70%. Your income will therefore fall at least 25%. That's a big drop, and it's annoying enough when your job is canceled. After all, your monthly obligations, such as your rent and the monthly payments on a loan, will continue to run. That can cause uncertainty. Precisely in such a case, you would like to get everything up and running as quickly as possible and not lag behind.
To be able to continue to pay the monthly installment of your loan if you become unemployed, you can take out unemployment insurance. This way you prevent arrears on your loan, with all the consequences that entails. (Not paying your monthly installment for two months can already mean that you will incur a BKR coding - Bureau Kredietregistratie.)
Own risk period
Do you have (involuntary) unemployment insurance? And are you fired by your employer for economic reasons, for example? Then you could make use of the unemployment insurance. However, many insurers do have a deductible period of 30 or 365 days - only after that your payment from the insurer starts. This information is normally on your policy schedule.
Insurance for death
Do you have a loan? Then you usually have to pay this off in monthly installments. If you take out the loan together with your partner, you are both liable for making those payments properly on time. In the tragic event that your partner dies, this can cause financial problems. After all, at such a moment you have other priorities and matters on your mind than arranging your monthly installments. That is why you can choose to insure a death.
Insurance against death
Death insurance can save you a lot of time and trouble. Of course, as a surviving relative, you must inform the insurer (and credit company) and you will have to produce a death certificate. The insurance company will then handle your claim and normally pay out. Have you opted for a term life insurance that covers the entire loan? Then the insurer will transfer the outstanding balance to the credit company.
If you have opted for a term life insurance policy that covers part of the loan, the insurer will transfer that amount (unless the outstanding balance is lower than the cover).
If there is a remaining balance and you think the current monthly installment is quite high, it is advisable to look at the possibility of lowering your credit limit. This also decreases your monthly installment.
Risk of death for next of kin
When there is no partner or both contractors die, their next of kin will have the option to accept the inheritance. Suppose your children immediately accept the inheritance, then they also take over the debt you have incurred. Your children therefore have additional financing by accepting the inheritance.
Take out life insurance
Taking out a term life insurance for the (partial) absorption of a loan is normally a smooth process. Usually there are a few questions on the certificate and 95% of our applications are therefore accepted by the insurer.