Dangerous calculation: life insurance instead of amortization

For many years, it was common practice to take out life insurance as a repayment substitute when making an investment. From the insurance, the loan is to be repaid in one fell swoop when due.

The long-lasting low interest rate now plunges many craftsmen into problems. The once calculated maturity sum of the insurance is far from being reached today.

Investment financing with life insurance as a repayment substitute has been a common financing practice over the last five to 15 years. Unfortunately, this calculation no longer works in most cases. Cause: the prolonged period of low interest rates. The average interest rates calculated at the time of conclusion of the contract are not achieved today. Now there are liquidity gaps that can easily reach six figures. By no means all of the craftsmen affected have recognized this problem, warns business consultant carl-dietrich sander from neuss. The problem is obvious: the loan cannot be repaid in full from the maturity sum of the life insurance policy.

The bank had proposed the suspension of repayments

Sander describes an example from his consulting practice, although the name of the entrepreneur has been changed: jakob werner couldn't believe his eyes: his bank wrote to him that, with immediate effect, they would be charging redemption premiums of 2.500 a quarter to cover the "repayment gap" of around 100 euros.000 to gradually cover in its real estate financing. At the time, the bank itself had proposed the suspension of repayment against the conclusion of a life insurance policy for the financing of the workshop building. And that should no longer apply ten years later?

Ten years ago, interest rates were still lush

Dangerous calculation: life insurance instead of repayment

The background quickly became clear to werner: when financing ten years ago, the insurance companies calculated with average interest rates of around six percent per year. Due to the long period of low capital market interest rates, however, this calculated rate was quickly and permanently not achieved. Currently, life insurance policies generate an average interest rate of four to four-and-a-half percent, although the interest rate can also vary considerably depending on the insurance company. In the case of werner's 20-year financing, the insurance amount was set at around 67 percent of the loan amount. The difference should be covered from the interest (surplus shares). And that is exactly what will no longer work.

Jakob werner is now considering how he will negotiate the situation with his bank. In any case, he does not want to accept the letter so easily. Werner: "the right way would have been to sit down together, discuss the situation and look for solutions together – instead of wanting to act "by order"". Business consultant carl-dietrich sander points out that there are many such cases in the trade – and that some have not yet recognized this problem. That's why he has drawn up a checklist that every craftsman can use to calculate his own "repayment gap" and then take action.

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