Life insurance (Residual debt) in Luxembourg: Annual or single Premium?

Annual or single premium for your life insurance (residual debt) in Luxembourg? Learn the differences, tax deduction limits, and how to optimise your savings.

When you take out a mortgage in Luxembourg, the bank almost always requires life (or residual debt) insurance (assurance solde restant dû). This insurance protects your loved ones by covering the outstanding balance of your loan if you pass away.

But did you know that how you pay your premium can affect not just your finances, but also your taxes?

Annual vs single premium: what's the difference?

Annual premium

• You pay a premium each year, calculated on the outstanding capital.
• The amount decreases over time as your loan is paid off.
• You can deduct these premiums every year under special expenses.

Single premium

• You pay once, at the start of the loan.
• It's usually more cost-effective in the long run: you avoid increases linked to age or changes in your health.
• For tax purposes, the single premium benefits from a much higher deduction ceiling.

Tax deduction limits

Luxembourg encourages residual debt insurance by allowing you to deduct the premium—whether annual or single.

• Annual premium: deductible within the special expenses allowance (a flat rate of €672 per household member, increased for dependent children).
• Single premium: benefits from a specific, much higher ceiling, calculated based on your age and number of dependants.

Single premium: detailed limits

With a single payment, the maximum deductible amount increases significantly.

The deductible is limited to the value of the single payment, up to:

• €6,000 base amount,
• plus €1,200 per child in the household,
• plus 8% for each year of age above 30.

Renewing your single premium every 5 years

Here's something many people don't know: you can renew the single premium every 5 years.

In practice, this means you can make a new single payment after 5 years and claim the tax deduction again.

It's a smart strategy if you want to:

• maximise your tax benefits over time,
• reduce the net cost of your insurance,
• optimise your family's tax planning.

The bottom line

Residual debt insurance isn't just a requirement from your bank, it's also a genuine tax advantage in Luxembourg.

• The annual premium gives you a regular deduction, but it's limited.
• The single premium unlocks a much higher ceiling, with the option to renew every 5 years.

Before you decide, compare both options and consider the tax impact based on your age, family situation, and plans. Feel free to contact our insurance team for advice: agence@accounttech.lu.