Investment

Investment: Insurance as a substitute for a bank: you should pay attention to this

Summary

When looking for a good real estate loan, one thing is clear to most customers: You can get money for the house or apartment at the bank. However, there are also alternatives. “Many insurance companies are also active in the […]

Investment: Insurance as a substitute for a bank: you should pay attention to this.  Investing: What to look out for (Source: Thinkstock by Getty-Images)

When looking for a good real estate loan, one thing is clear to most customers: You can get money for the house or apartment at the bank. However, there are also alternatives. “Many insurance companies are also active in the mortgage business,” explains Max Herbst from the independent financial consultancy FMH in Frankfurt. Some insurance companies now also offer overnight or fixed-term deposit accounts.

Business with banking products is definitely an advantage for insurance companies, as it enables them to build a bridge to new customers. The calculation behind it: Anyone who has a loan with attractive terms or a good overnight money account with a provider may take out insurance there later.

“This means that the customer remains loyal to the company”

Another advantage for the company: “With such offers you strengthen customer loyalty,” explains Herbst. If, for example, a customer’s life insurance is due, the credit can be parked in a daily money account with the insurance company instead of transferring it to a foreign bank. “This means that the customer remains loyal to the company,” says Herbst.

For consumers, this strategy isn’t necessarily bad. Insurance companies offer comparatively good interest rates for overnight money or fixed-term deposits. According to FMH, customers can get 2.0 percent interest for their money on a fixed deposit account with a term of 12 months with direct insurance. When it comes to deposits in call money accounts, insurers charge up to 2.05 percent, which is more than some large banks. “However, insurance companies are not among the top providers in this area,” says Herbst.

Real estate loans less risky

Insurers are far more active in the real estate finance sector. For some companies, this area has long been part of the business, explains Simone Schuchert from the German Insurance Association (GDV) in Berlin. “Insurance companies are obliged to diversify and mix their investments broadly.” Real estate loans are generally much less risky than an investment in stocks.

For real estate buyers, it can pay off to take a closer look at the insurers’ offers, says Josephine Holzhäuser from the Rhineland-Palatinate consumer center in Mainz. “The competition is a good thing,” says the mortgage expert. Because the greater the number of providers on the market, the greater the choice for consumers.

Check fixed interest rates

From the point of view of the consumer advocate, there is also an advantage in building financing through insurance: “The insurers usually offer long fixed interest rates of 15 or 20 years,” says Holzhäuser. And that could be positive given the current low interest rate level.

However, a long fixed interest rate often costs a little more. “You always have to check on a case-by-case basis whether it really makes sense,” recommends Niels Nauhauser from the Baden-Württemberg consumer center in Stuttgart. “If you can pay off your loan in 17 years, you don’t need a term of 20 years.”

No competition with banks

In principle, the home financing should be on a solid foundation, recommends Holzhäuser – regardless of whether the money comes from an insurance company or a bank. “Nobody should allow themselves to be put under pressure, but consider whether the concept is sustainable in the long term.” There are no differences between banks and insurance companies in terms of contract conditions: “An insurance company also checks the customer’s creditworthiness and can provide security.”

However, insurance companies do not want to build up general competition with banks. Loans and call money accounts are not part of the core business of insurance, says GDV spokeswoman Schuchert.

And that will not change in the future either. According to the industry association, the share of mortgages in total investments by primary insurers has tended to decline in recent years. At the end of 2005 it was still seven percent of total investments, at the end of 2010 it was around 5.3 percent.

Credit interest should offset the rate of inflation

When investing money, customers should make sure that the credit interest on the overnight or fixed-term deposit account compensates for the rate of inflation as far as possible. Otherwise, the savings will gradually lose their value, explains Max Herbst from Finanzberatung FMH. According to the Federal Statistical Office in Wiesbaden, the inflation rate in 2011 was 2.3 percent.