Borrower insurance: the juicy gains to be made, despite the increase in premiums


300% increase: loan insurance broker Magnolia can’t believe it. Since September 1, and the application of the market liberalization law, requests for change of contract have quadrupled. “It was certain that this right would find its public, but such a magnitude may surprise and underlines the strong tension on purchasing power” welcomes the intermediary in a press release.

Since the beginning of the month, individuals can change their loan insurance contracts at any time, without having to respect the (very complicated) calendar in force until then. In the crosshairs of the parliamentarians at the origin of this reform: the banks. Credit institutions take the lion’s share. Despite three successive liberalization laws, they still capture more than 85% of loan insurance contributions. Specialized insurers only 15%!

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Removal of the medical questionnaire

Parliamentarians, aware that further liberalization would be detrimental to borrowers in the most fragile health, introduced the abolition of the medical questionnaire. The approach allows professionals to detect the existence of serious illnesses in the customer, to better understand the risks of non-payment… and therefore to adapt their prices. This formality, required by banks and insurers at the time of taking out the loan, has become prohibited for loans of less than 200,000 euros (400,000 euros for couples) whose maturity occurs before the borrower is 60 years old.

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This rebalancing for sick people, however, causes an additional cost for others. By covering their customers “blindly”, insurers have significantly increased their average rates. “We are seeing an increase ranging from 8 to 25% among bank competitors,” explains Astrid Cousin, spokesperson for Magnolia. Insurers like Metlif, which mainly cover people with aggravated health risks, have not changed their grids, however, being used to managing this type of clientele. Conversely, those positioned on healthy executives had to modify their prices in depth.

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Despite these increases, putting your contract out to competition remains a largely lucrative operation, as evidenced by the simulations carried out by Magnolia for Capital. Two profiles were selected:

  • a couple of non-executive and non-smoking employees, going into debt of 200,000 euros over 20 years and exempt from medical questionnaire;
  • a couple of managerial employees, smokers, taking out a loan of 250,000 euros over 25 years and submitted to a medical questionnaire.

For each of them, Magnolia has calculated the average rate charged by banks, and that of competing specialist insurers. The results are, to say the least, eloquent.

The first profile would divide its rate and its insurance contributions by two to reduce the total bill to 6,531 euros. The monthly payments would thus go from 58 to 27 euros, for coverage at least as protective. The law obliges individuals leaving their current insurance to find a contract whose guarantees are at least equivalent to the previous ones.

For our second profile, submitted to the medical questionnaire, the equation seems more complicated. By accepting the contract from his bank, the two smoking executives would have to pay a staggering bill of 90,000 euros in insurance to be reimbursed over 25 years. “Smokers over 40 pay a high price for their coverage, explains Astrid Cousin. The older the borrower, the higher the smoking premium, because the risk of cancer also increases”. However, the household does not miss an opportunity to drastically lower the cost of their cover. Although he has to pay a still very heavy bill by leaving his bank for an alternative insurer, this profile would achieve stratospheric savings of nearly 50,000 euros. Monthly payments would drop from 300 to 139 euros per month for 25 years.

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