Protection
Mortgage life cover
Anyone who takes out a loan in a private capacity usually also takes out mortgage life cover. This ensures that, upon the death of a borrower, the outstanding balance of the loan is repaid, in whole or in part, to the lending institution.
- Who we help
- Anyone with a mortgage loan, and their family.
- The tax benefit
- Depending on the structure, possibly tax deductible; we look at it together with your existing contracts.
Mortgage life cover is a special type of life cover and essential for protecting your family
Mortgage life cover is a specific type of life cover and an important instrument within the financial protection of the family.
Who is it for?
Any individual who takes out a mortgage loan and wants to protect their family or next of kin.
Is mortgage life cover mandatory?
There is no legal requirement, unlike, for example, third party motor liability insurance or occupational accident insurance. The lending institution can, however, make mortgage life cover a contractual requirement. Note that an insurance broker such as Life Experts can, for mortgage life cover, call on insurers who specialise in it. Our clients therefore get better terms than what is standard.
Our tips
When a mortgage loan is revised, it is also advisable to review the mortgage life cover. Mortgage life cover can also be taken out on two insured lives. The insurer's payout will take place on the first death of either of the two, after which the policy expires.
Looking for the best tax treatment?
For mortgage life cover taken out since 1 January 2020, no tax advantage is available anymore within property tax rules. You may therefore want to consider a few alternatives?
Through the 3rd pillar?
You could also cover the debt of a loan through a pension savings policy. This gives you a 30% tax reduction, but you also have to take into account the applicable final taxation on payout. In exchange for a tax deductible premium, slightly more therefore needs to be insured.
Through the 2nd pillar?
For the self employed, it is worth considering the same exercise under the VAPZ (the free supplementary pension for the self-employed) or POZ (the pension agreement for the self-employed without a company) regime. You then take out mortgage life cover through the tax regime of VAPZ or POZ. And if you, as a self employed person, have a company, then even mortgage life cover in the form of an IPT (an individual pension commitment funded by your company) is possible. Here too, account must be taken of the fact that more capital must be insured than the balance of the loan, to allow for the tax treatment and inheritance on the capital paid out.
Through the 4th pillar?
Finally, we find that a so called 'non tax' policy between individuals often forms the best solution.
What we take into account in any case
In all these cases, account will have to be taken of:
- The correct choice of policyholder
- The correct definition of the beneficiary
- The right amounts of capital to insure, taking into account the expected tax treatment and inheritance tax
Tax advantage in personal income tax
For mortgage life cover taken out since 1 January 2020, no tax advantage is available anymore within property tax rules. For alternative tax options, see the box alongside. The premiums of mortgage life cover linked to a loan taken out in Flanders before 31 December 2019 did, under certain conditions, still qualify for a tax reduction. And those who benefited from this advantage can continue to benefit for the duration of the mortgage loan. Many insured people still benefit from a tax reduction within the woonbonus in place since 1 January 2005 (capital repayment + interest + mortgage life cover premium). The advantage applied for 10 years and there were a number of conditions to meet.
- First of all, the insurance contract had to be taken out by the taxpayer on their own life before their 65th birthday, with an institution established in the EEA
- In addition, the insurance had to serve exclusively as security or reconstitution for the mortgage loan on the 'sole and own' home
- The taxpayer was the policyholder and the insured, and as death beneficiary in the insurance the following description had to be copied literally: 'the persons who, as a result of the death of the insured, acquire the full ownership or the usufruct of the home'. It was permitted for each co borrower to take out an insurance for the total amount borrowed by both partners
Tax treatment and inheritance tax of the payout
As soon as one premium of the mortgage life cover has been deducted for tax purposes, the amount paid out upon the death of the borrower-insured is taxed. It is the person who acquires the economic benefit of the home, that is the usufruct or the full ownership, who will be taxed. The tax is levied through a 'notional annuity', which spreads the tax burden over a number of years. This annuity must be declared on the tax return as a replacement income and is consequently taxed together with the other income at the progressive tax rates.
Does this fit your situation?
You will get an honest answer, even if that answer is "no".
Disclaimer: Life Experts provides insurance solutions for self-employed directors, liberal professions, SMEs and large companies. You will find the basic information for each type of solution on this website. With the product descriptions and the product overview on this website, we do not aim to follow a tax or legal classification, but a pragmatic and practical one. A turnover insurance, for instance, is fiscally a company-director insurance. And a death cover or a disability insurance can be taken out within the tax regimes of IPT, VAPZ, POZ, long-term saving, pension saving, and so on.