Housing loans: how do I protect my loved ones in case of a fatal accident?

À quoi sert l’assurance solde restant dû au Luxembourg ?

Lors d'un investissement immobilier, l'assurance solde restant dû intervient comme un bouclier financier à double détente. D'un côté, elle rassure l'organisme prêteur en lui garantissant le remboursement intégral ou partiel du capital emprunté si un accident de la vie survenait. De l'autre, elle protège durablement la famille et le patrimoine de l'assuré. En cas de sinistre, l'assureur se substitue aux emprunteurs pour solder la dette auprès de la banque, permettant ainsi aux proches de conserver le bien immobilier sans la pression financière d'une mensualité devenue trop lourde à assumer.

Different packages in remaining due balance insurance

The choice of your outstanding balance insurance option directly shapes how your premiums evolve and the level of peace of mind your household enjoys. For a couple, the concept of cover proportion is central: being insured at 100% on each life guarantees full repayment of the loan if one of the two partners dies, whereas a 50/50% split will leave half of the loan payable by the survivor. The structure of the policy (decreasing capital aligned with the loan repayment schedule) allows the insured amount to be adjusted precisely over the years, thereby optimising the overall cost of your annual premium or single payment.

Is outstanding balance insurance mandatory in Luxembourg?

From a strictly legal perspective, taking out outstanding balance insurance (OBI) is not mandatory in the Grand Duchy. However, in almost all cases, lending banks make it an absolute condition precedent for granting a mortgage loan. Without this cover, the risk of financing being refused is extremely high. The bank requires this guarantee to protect itself against payment defaults, but it also provides an essential safety net for the borrower. It prevents the mortgage debt from being passed on to the heirs or surviving spouse if the worst happens.

What cover is provided by outstanding balance insurance?

The outstanding balance insurance policy is built around key types of cover, which can be adapted to the borrower’s profile. The main cover protects against the risk of death: the insurer repays the outstanding capital to the bank according to the defined proportions. It is generally accompanied by disability cover (total or partial) to compensate for inability to work. For couples, the cover can be allocated to one or both lives (e.g.: 50/50% or 100/100% for full protection). It is essential to analyse the policy before signing, as waiting periods and exclusions vary significantly from one insurer to another.

A tax-deductible premium

In Luxembourg, outstanding balance insurance offers highly attractive tax benefits. The premiums fall within the category of ‘special expenses’ (Article 111 L.I.R.) and directly reduce your income tax base. The deductible limit is increased according to household composition and the age of dependent children. In the context of a property purchase, using a single premium (paid in one instalment at the start of the loan) is often favoured by taxpayers: it allows them to maximise the tax deduction in the first year in which the loan is granted, fitting perfectly into an overall wealth optimisation strategy.

Remaining Due Balance insurance premiums are tax deductible from income up to a ceiling of 672 euros per year, and double that if you are married or per additional child.

In case of payment by a single premium, the annual deductible limit increases.

The Luxembourg government's direct contributions authority offers examples of calculations of tax deductions from the single premium. For more information, do not hesitate to consult the 2021 Luxembourg tax guide !

Protection available from your insurer

It is common to think that you are required to take out borrower insurance with the bank granting the loan. This is a misconception: the law guarantees freedom of choice of insurer. The bank cannot impose its own insurance product on you or change the terms of your interest rate if you present an external policy with equivalent cover. Comparing offers allows you to benefit from often more competitive rates, personalised optional cover and bespoke support. Comparing offers before committing is the key to saving thousands of euros over the term of your loan.