Outstanding balance insurance is a short-term policy which guarantees the payment of a capital sum in the event of the death or disability of the person insured during the term of the policy. The insured capital is, generally, the current amount outstanding under a current mortgage or another loan to be repaid.

If the insured person dies before the end of the loan repayment period, the insurer will repay the capital remaining due to the lending bank. The borrower’s relatives will not be responsible for repayment of that amount of the loan which was determined at the time when the policy was taken out.

The insurance premium may be paid in one go or spread out over time with annual or monthly instalments. The amount of the insurance premium is calculated on a case-by-case basis depending on various criteria: the capital of the loan to be insured, the interest rate, the term of the loan, the age of the borrower(s), their state of health and the amount of the guarantees.

When you borrow a large sum for a property project or a major purchase, the bank may ask you to take out outstanding balance insurance to guarantee all or part of the sum borrowed:

• Policyholder: the borrower (and his co-borrower)
• Insured: the borrower (and his co-borrower if two people are borrowing jointly)
• Beneficiary: the bank

Each borrower may be insured 100%, or the amount may be split between the joint borrowers. Outstanding balance insurance can also provide additional cover in the event of disability.

The vast majority of outstanding balance insurance is taken out as part of a real estate project but it may also guarantee the repayment of large consumer loans (for example the purchase of a car or renovation work).

Outstanding balance insurance offers great flexibility: the subscriber can choose to protect himself in the event of death or total disability. Similarly, it is possible to divide the amount to be insured between each of the co-borrowers, depending on their income, physical condition or lifestyle.

When income is declared, the insurance premiums paid by the borrower are deductible from his taxable income.

In the case of a single premium (paid in one go, at the time of subscription) the maximum deductible amount depends on the age of the taxpayer and the number of people in his household. The single premium payment makes it possible to take advantage of a favourable tax regime thanks to an increase in the deductible ceiling. Indeed, a single person before the age of 30 who takes out outstanding balance insurance which is paid by single premium may benefit from a tax deduction of €6,000.

If premiums are paid at regular intervals, policyholders benefit from a tax deduction of up to €672 per person in the household. The premium may vary depending on the number of people and children in the household. For example, a family with two children can benefit from €2,688 in annual tax deductions for the premiums paid for the outstanding balance insurance.

To benefit from this tax deduction, the borrower must satisfy two conditions.

• A single person taking out outstanding balance insurance before the age of 30, which they pay in a single premium, may benefit from a tax deduction of €6,000. As for the single premium, it is only deductible if paid as part of the cover for a real estate loan relating to the main residence.
• The insured sum must not exceed the amount of outstanding unpaid capital.

If these two conditions are met, the borrower may deduct the insurance premiums from his taxable income, thereby reducing the amount of income tax payable.

Outstanding balance insurance is often a precondition for obtaining a large loan. Furthermore, it enables you to protect you and your family against various risks (disability or death) while benefiting from immediate tax deductions.