Term life insurance

Term Life Insurance - Term life insurance is a type of life insurance that pays out an agreed-upon sum to the beneficiaries in the event of the insured person’s death. When financing a home, it covers the remaining balance of the loan so that the surviving partner or family does not have to sell the home to pay off the outstanding mortgage payments.

Why is term life insurance important for mortgage financing?

A mortgage typically spans 20 to 30 years-a period during which unforeseen tragedies can occur. If the primary breadwinner or a partner who contributes significantly to the loan payments dies, the surviving family members face a double burden: the personal loss and a loan debt that is often no longer manageable on a single income. In the worst-case scenario, the property may have to be sold off-often at an inopportune time and below market value.

Term life insurance solves this problem: In the event of death, the insurer pays out the agreed-upon sum insured, which can be used to pay off all or part of the remaining loan balance. Many banks require proof of term life insurance as a prerequisite for loan approval, especially in cases of high loan-to-value ratios or when only one income is used to cover the installments.

When choosing a type of insurance, two options are available: Term life insurance with a constant sum insured pays out the same amount over the entire term-regardless of how much of the loan has already been repaid. Term life insurance with a decreasing sum insured (also known as residual debt insurance) adjusts the payout amount to match the decreasing remaining debt on the loan. The decreasing option is more affordable, as the insured risk decreases over the term. The constant option, on the other hand, provides an additional financial cushion for the surviving dependents beyond mere debt repayment.

The cost of term life insurance depends on the age at entry, health status, sum insured, and term. For a 35-year-old, healthy person, the monthly premium for a sum insured of 250,000 euros and a 25-year term is often as low as 10 to 20 euros-a comparatively small amount relative to the risk covered.

Cross-Insurance for Couples

If two partners are jointly financing a property, we recommend so-called cross-insurance (also known as mutual insurance). In this arrangement, each partner takes out a separate policy on the life of the other. The key advantage: the policyholder and the insured person are not the same, meaning the payout in the event of death does not become part of the deceased’s estate. The insurance proceeds are available directly to the surviving partner without being subject to inheritance tax-a tax advantage that can amount to several thousand euros for high coverage amounts.

Alternatively, couples can take out a joint term life insurance policy covering two lives, which pays out upon the death of the first spouse to pass away. This option is often more affordable than two separate policies but offers less flexibility in the event of separation or divorce.

Practical Tip for Homeowners in Nuremberg and Franconia

Given current real estate prices in the Nuremberg metropolitan area-an existing apartment in neighborhoods like Gostenhof, Maxfeld, or Röthenbach often costs between 200,000 and 400,000 euros-it is particularly important to insure against the remaining debt. We recommend choosing a sum insured that is at least equal to the loan amount and adjusting the term to match the planned total repayment period.

Before taking out a policy, it’s worth comparing several providers, as premium differences can be significant even for identical coverage. Our network of independent financial advisors in the Nuremberg region is happy to help you select the right plan.

Frequently Asked Questions

Is term life insurance mandatory for a mortgage?

There is no legal obligation to purchase it. However, many banks make term life insurance a condition for loan approval-especially for large loan amounts, sole earners, or families with children. Even without a bank requirement, we strongly recommend purchasing it, as the monthly costs are disproportionately low compared to the risk covered.

What is the difference between term life insurance and whole life insurance?

Term life insurance provides pure death benefit coverage without a savings component-if the death benefit is not claimed, the coverage expires at the end of the term without any payout. Endowment life insurance, on the other hand, combines death benefit coverage with a savings component and pays out a lump sum upon maturity. For the sole purpose of securing a mortgage, term life insurance is significantly cheaper and therefore the more economically sensible choice.

Can pre-existing conditions prevent you from getting coverage?

When applying, the insured must answer health-related questions. Pre-existing conditions do not necessarily lead to rejection, but they can result in risk surcharges or exclusions from coverage. Serious pre-existing conditions such as a cancer diagnosis or heart disease can make it difficult to obtain coverage with some insurers. In such cases, we recommend an anonymous preliminary risk inquiry through an independent insurance broker who can explore the market without a rejection being recorded.

What coverage amount makes sense for a mortgage?

The minimum recommendation is a coverage amount equal to the total loan amount at the time of purchase. For a loan of 350,000 euros, the term life insurance should cover at least this amount. In addition, we recommend a premium of 10 to 20 percent as a buffer for commitment fees, short-term liquidity needs of the surviving dependents, and any inheritance or settlement costs that may arise. Those who choose the constant option fully cover the remaining debt even in the initial phase, when the principal repayment portion is still low. With the decreasing option, the initial sum should also be slightly higher than the actual loan amount, as repayment progresses slowly, especially in the first few years. In the Nuremberg metropolitan region, where purchase prices for existing homes will often still range between 250,000 and 500,000 euros in 2026, a sufficiently high sum insured is not a luxury but a basic protection decision.

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