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Borrower Insurance: How to protect yourself well while limiting costs?

Posted by Michel on January 3, 2022

When taking out a mortgage, the lender will almost always demand the simultaneous purchase of borrower insurance, which is not required by law. In the case of a consumer loan, this will be the exception rather than the rule. Although such a contract may seem needless to you, it will provide you with a way out if you are unable to repay due to a life event. Let’s take a deeper look at the purpose of this insurance and how you can keep the cost to a minimum.

The role of creditor insurance

In the event that an occurrence of force majeure prevents the borrower from honoring the remainder of his monthly payments, it ensures the absorption of all or part of the repayment deadlines or the capital due to a bank after the subscription of a loan. As a result, insurance traditionally covers:

• the borrower’s death;

• complete and irreversible loss of autonomy;

• permanent handicap robbing the borrower of his means of sustenance;

• temporary incapacity for work;

• job loss if the option is exercised.

This insurance provides valuable protection not only for the bank, but also for the borrower: in the case of a job loss or a crippling injury, the borrower will no longer be responsible for his debt. Similarly, in the case of death, the heirs will not be responsible for paying off their parents’ debt.

When you sign up for insurance, you’ll be asked to fill out a health questionnaire, which will be used by the insurer to compute the amount of the insurance premium based on the assessed risk. It’s also possible to put up with a flat-out refuse.

Guarantees actually provided

Let us provide some helpful information about the coverage of each incident that disrupts the regular repayment of the contractual loan.

The death

Its incidence is always covered by an insurance policy, regardless of the reason, although it is subject to an age restriction beyond which it will no longer apply. As a consequence, death may not be covered for the whole term of reimbursement. If it happens and the insurance is liable, the lender will be paid the outstanding capital on the day of death.

The total and irreversible loss of autonomy

To exercise this guarantee, the borrower must provide evidence of three cumulative conditions:

• He must be completely and permanently unable to participate in any remunerated work;

• he must be compelled to rely on a third party to conduct three of the four basic daily functions (dressing, washing, eating, and moving); and

• he must not have reached the contract’s age restriction.

While it is common practice to receive a third-category invalidity pension, this does not indicate that the guarantee is immediately activated. Each insurance policy has its own set of regulations!

Permanent disability

This is a whole or partial inability to work that lasts for a long time in both circumstances. To be eligible for the contract’s benefits, you must comply with the following clauses:

• be deemed fully (or partly) unfit for any action that may result in gains and profits,

• or be declared totally (or partially) unsuitable for the activity that you did on the day of the loss.

In concrete terms, complete disability requires a disability rate of at least 66 percent, while partial disability requires a rate of at least 33 percent, which is not guaranteed by all contracts.

Temporary incapacity for work

An extended absence from work due to sickness or an accident may cause the insurer to believe you are temporarily unsuitable to do your professional activity, or in certain situations, any professional activity. The insurance company may then take over your reimbursements, according to the contract’s terms. It’s worth noting that some policies include a language that guarantees coverage in the case of a half-time therapeutic recovery, although this is uncommon.

Please note that doing a professional action on the day of the request is not always required to claim this coverage. In certain situations, an incident that happened in the life of a retiree or a homemaker, for example, may be covered: it is essential to examine the contract’s conditions.

Job loss

The circumstances that give birth to the right to this assurance may be varied, and they must be negotiated at the beginning based on the circumstances. While dismissal and Pôle Emploi compensation are usually necessary, be aware that the insurer will almost certainly impose a waiting period or waiting period. Furthermore, the duration of this guarantee’s involvement is always restricted.

The points of attention of the borrower insurance contract

Real estate company to buy houses and land are delivering keys and houses to customers after agreeing to make a home purchase agreement and make a loan agreement. Discussion with a real estate agent

If reading all the lines of a multi-page contract is laborious, it is highly advised that you read the lines of creditor insurance carefully. Waiting periods, deductible limits, and guarantee exclusions connected to health declarations may all have a significant influence on your condition throughout the contract.

Check that the age restrictions for claiming warranties are acceptable to you, and that any restrictions aren’t likely to cause you financial hardship.

Finally, the manner of support may be either constant (the compensation will be equal to the amount of the monthly payment) or variable (the compensation will be equal to the amount of the monthly payment) (it will depend on the loss of income).

Reduce the cost of borrower insurance

Let’s look at how you might minimize the cost of your borrower insurance now that you have the information you need to pick which collateral you need.

Insurance often required by the lender

Banks have been used to placing terms on their agreements, and in particular, actively pushing the subscription to their services or partners of a house insurance or borrower insurance, as they are aware of their power at the time of taking out a mortgage.

If your acceptance of the latter cannot be used to condition the granting of credit in line with the terms of the Lagarde legislation of 2010, the bank’s rejection to give you an offer does not need to be explained and may, in reality, be due to your lack of cooperation.

If you feel obligated to accept your bank’s offer in order to make your idea a reality, be assured that you will not be imprisoned. If you have bank-provided insurance, the cost will be included in the Total Annual Effective Rate (APR), and the specifics will be reflected in your amortization table.

Choosing your insurance is your right!

If the bank’s borrower insurance does not meet your needs and your project is approved, don’t be afraid to seek a delegation of insurance. Before the funds are released for your advantage, another insurer of your choosing will issue an insurance delegation to the bank granting the credit.

Please keep in mind that this contract must include assurances that are at least as good as the bank’s group contract. Your bank can’t legally decline delegation, and you can’t raise your credit card or other charge rates to make up for the loss of this product.

The Hamon statute of 2014 allows the ability to delegate insurance for a period of 12 months after taking out the loan. This service intends to deter banks from putting undue pressure on applicants. Every year, on the anniversary date of subscription, all borrower insurance might be canceled in favor of another. To ensure that you get the benefit, submit a registered letter at least two months before the insurance contract’s expiration date.

When purchasing borrower insurance, make certain that the guarantees included cover the hazards you might expect in light of your circumstances. After that, you should be cautious, and it’s typically a good idea to make an insurance change at least once that might result in significant savings. Creditor insurance often accounts for more than 10% of the overall cost of credit, and participating in the competition may save you thousands of euros!

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