Credit Insurance – How It Works
The subscription of a borrower’s insurance is essential to be able to contract a mortgage after a credit institution. This insurance is a guarantee of security in the event of death, disability or loss of employment.
We tell you everything about this insurance: definition, guarantee.
What is borrower insurance?
Also called credit insurance, this coverage guarantees your loan from the bank. It is a security for you and your family as well as for your banker if an incident occurs and you are no longer able to repay your loan.
Indeed, if you are no longer able to repay your monthly loan payments due to death, disability or job loss, it is the insurance that reimburses the credit institution.
Borrower insurance is not legally compulsory, but no credit institution will agree to grant you a loan without it, unless you have significant assets and put it as collateral.
The contract ends on the repayment of the last installment or on the death of the insured.
Credit insurance: thanks to it, live with peace of mind Loan insurance guarantees
This insurance covers you and your family in the event of death, loss of autonomy (impossibility of carrying out the acts of daily living without the assistance of a third person), invalidity and temporary incapacity of work.
Now, let check out some insurance policy that correlate with the content of this post.
The death guarantee
Borrower insurance always includes a death guarantee.
In the event of the death of the insured, the guarantee allows payment to the bank of the capital remaining from the day of death he heirs of the deceased person then have no obligation to reimburse the bank. In addition, the real estate is included in the estate.
Beware of warranty exclusions such as suicide or the practice of extreme sports.
The invalidity guarantee extension concerns functional invalidity, the inability to exercise a professional activity or the total and irreversible loss of autonomy.
With this guarantee, the insurer covers the monthly payments, either partially or in full, according to the provisions of the borrower’s insurance contract.
In the event of partial incapacity, the coverage of the monthly payments will depend on:
- Degree of disability
- The scope of the warranty
- The age limit for paying monthly loan payments
Most often, the insurer reimburses the capital in the event of total and irreversible loss of autonomy (PTIA).
Job loss guarantee
This guarantee covers the risk of dismissal and provides for the repayment of the installments of the mortgage. The terms of this support vary from contract to contract.
Consult your advisor to find out more.
With whom to take out credit insurance?
The majority of borrowers take out their mortgage loan insurance offered by the bank, however nothing obliges them to do so.
Indeed, since the entry into force of the Lagarde Law in 2010, it is possible to use insurance delegation. This makes it possible to choose borrower insurance from a third-party establishment, an insurance company for example.
This provision makes it possible to bring into play competition between the different establishments and to be able to save money on the cost of your mortgage.
Credit insurance – How the price is set
The calculation of the price of borrower insurance is based on 4 pricing criteria:
- The medical risk you represent. This risk is measured according to your age, your lifestyle and the information that will emerge from the completed medical questionnaire;
- Occupational risk according to the job performed, as a firefighter for example;
- The way of life you have, such as the practice of extreme sports for example;
- The amount you borrow.
If you opt for a delegation of insurance, the contribution will gradually decrease because it is based on the outstanding capital.
Borrower insurance can represent between 5 and 30% of the total amount of your mortgage. It is therefore not an aspect to be neglected and it is necessary to include it in your financing plan.