Borrower insurance: what is it for?

REAL ESTATE LOAN INSURANCE. Home loan insurance is essential for any individual who has taken out a loan.

In the context of a real estate purchase, mortgage loan insurance, also called borrower insurance, corresponds to insurance allowing the payment of repayment deadlines or the capital due of a remaining loan in the event of a major event ( death, total loss of autonomy, permanent disability, job loss, etc.). If it is not compulsory, borrower insurance is often essential to obtain a mortgage. The lending institution “will almost systematically require that the borrower take out insurance: against the risks of Death and Total and Irreversible Loss of Autonomy (PTIA) in the event of a rental investment; against the risks of Death, Total Loss and Irreversible Autonomy (PTIA), Disability and Incapacity for Work (ITT), or even Loss of employment in the event of the acquisition of a main residence”, can be read on the Assurance Banque Epargne website Info Service of the Banque de France.

In theory, home loan insurance is not obligatory for the subscription of a mortgage, but, in fact, the lending institution can force the borrower to subscribe to one. Borrower insurance generally covers contingencies such as the death of the borrower or a co-borrower, illness and disability, temporary or permanent, following an accident, and loss of employment.

The bank generally offers the borrower its own mortgage loan insurance. However, he is free to choose another if he finds that of his bank too expensive and to carry out what is called a insurance delegation. Provided, however, that the contract on which he finally sets his sights offers the same level of guarantee as that offered by the lending institution. It is therefore important that the borrower can compare the different mortgage loan insurance options available to him.

Since October 1, 2015, banks have been required to provide each borrower and co-borrower with a standardized sheet detailing the main characteristics of the borrower insurance offered, including the total cost of home loan insurance on the duration of the loan, expressed in euros, as well as the characteristics of the minimum guarantees required by the lender to obtain the latter. If the borrower takes out the insurance offered by the bank and later realizes that it is expensive compared to what the competition offers, he can change it. It is very important to choose the right borrower insurance and to compare the offers available: the cost of home loan insurance can indeed represent more than 30% of the total cost of the home loan.

The borrower is covered by the guarantees of the borrower’s insurance contract from the effective date entered on it. It is therefore she who marks the effective date of the contract, and not the date on which the document was signed.

You should know that home loan insurance rates can vary widely. They depend on the organization’s policy, but above all on the age and state of health of the borrowers as well as the risks covered.

The calculation of the cost of the mortgage loan insurance offered by the lending institution is based on the amount of capital borrowed. The rate of the borrower’s insurance thus remains unchanged for the entire duration of the loan. To calculate the average monthly payments to be paid under the mortgage loan insurance, it is therefore sufficient to multiply the rate of the borrower’s insurance by the capital borrowed and, finally, to divide by 12 the figure thus obtained.

Example: if the mortgage loan insurance rate is 0.42% for a borrowed capital of 250,000 euros, the monthly payment to be reimbursed under the borrower insurance will be equal to 87.5 euros (250,000 € x 0 .42% / 12 = €87.5). In the event of delegation of insurance, the calculation of the monthly payments to be paid, and therefore of the cost of the borrower’s insurance, is no longer made on the amount of the capital borrowed but on the amount of the capital remaining due.

Thus, the monthly payment is recalculated every year according to an amortization table and its amount is decreasing. To achieve a calculation close to the reality of home loan insurance, the ideal is to use one of the many simulators available on the Internet. Enter the amount, duration and rate of the loan, the calculator offers you the rate average insurance that you can modify. In an instant, the simulator calculates the amount of the monthly payments with the detail of the repayment insurance.

Since the risks covered by mortgage loan insurance are difficult to estimate, insurers overestimate the amount of insurance premiums, leading to an increase in the cost of insurance and, ultimately, the total cost of the mortgage. However, the law leaves the option for borrowers to be reimbursed part of the insurance premium paid at the end of each year when the implementation of the guarantees provided for in the contract has not been necessary. Not to mention that insurance premiums are placed by insurers and therefore generate interest. The law provides that the interest thus produced is also returned to the borrowers in part. The problem is that the insurers pay back the sums to be returned to the borrowers to the banks but that these do not redistribute them. We are talking about 40% of the amount of insurance premiums to be returned to borrowers for mortgages, i.e. an average of 3,021 euros per person for loans taken out between 1996 and 2012.

A situation that prompted the UFC-Que Choisir to take large French banks to court in 2007. In a decision rendered on July 23, 2012, the Council of State ruled in favor of the association. However, it does not specifically cite borrower insurance as being eligible for reimbursement of insurance premiums to borrowers. Furthermore, it does not specify whether group insurance contracts in the event of death are concerned. This leaves the banks free to interpret the 2012 decision in their favour. In practice, therefore, it is very difficult to collect one’s due by initiating an individual approach with one’s bank, which is why ActionCivile launched a group action in 2014, which the Hamon law made possible on condition to bring together at least 100,000 complainants. The action in question collected more than double: 215,148.

In addition, at the end of his home loan, an insured person can in theory request the reimbursement of the benefits of his mortgage loan insurance. Three conditions are required for this:

  • The additional premiums applied by the insurance must not have been used to reimburse the monthly installments of the credit following a claim
  • The loan must have been contracted between 1996 and 2005 for a mortgage
  • The refund request must be made within two years after the end of the mortgage.

To be reimbursed for your borrower insurance, there are two ways: to bring an individual action or a collective action.

The use of a comparator on the Internet, such as those of Meilleurtaux, LeLynx, Magnolia or Lesfurets, can help you choose the most advantageous insurance. Some simulation tools predict the occurrence of the sickness or the loss of employment, which is for example not necessarily interesting for the civil servants.

The conditions under which to change borrower insurance have changed a lot in recent years. Firstly, the Hamon law made it possible for borrowers to terminate the lending institution’s insurance in favor of an alternative contract offering the same guarantees at any time during the year following the signature of their credit, via a simple termination letter, ideally with acknowledgment of receipt, sent by registered mail to their insurer no later than 15 days before the end of the 12-month period.

Then the legislator, via the law relating to transparency, the fight against corruption and the modernization of economic life of 2016, known as the Sapin 2 law, introduced a provision allowing the annual termination of borrower insurance on the anniversary date. , but this measure was censured by the Constitutional Council. Meeting on January 17, 2017 in a joint committee, senators and deputies adopted the annual termination of borrower insurance (Bourquin amendment). Thus, for loan offers issued since February 22, 2017, the borrower may terminate the bank’s insurance even after the first year by means of a termination sent to his insurer no later than 15 days before the date expiry but at least 2 months before, indicating the effective date of the new insurance contract accepted by the lender.

A provision which was to extend to all loan contracts from January 2018. But that was without counting on the financial institutions which seized the Council of State in the summer of 2017, as well as the Constitutional Council in order to obtain the cancellation of the extension to all contracts. However, the Constitutional Council ruled on January 12, 2018 in favor of the annual termination of the borrower insurance, validating this possibility for all contracts. Since then, borrowers can therefore, even after several years, carry out a delegation of insurance.

Now for the 3rd step which allows the borrower to change insurance contract at any time, free of charge This measure was definitively adopted by Parliament in February 2022 and comes into force on June 1, 2022 (and September 1, 2022 for all contracts). The Lemoine law enacts several measures allowing better access to the borrower insurance market, largely dominated by the banking sector: infra-annual termination (read next paragraph), and the end of the medical questionnaire for mortgages of less than 200,000 euros (400,000 euros for a couple), reimbursed before the age of 60. If the Lemoine law is supposed to increase competition and lower prices, some insurers are taking the opportunity to raise their prices, noted Les Echos. The end of the medical questionnaire results, according to them, in an increase in risks, the document making it possible to identify borrowers who smoke or suffer from serious pathologies, profiles deemed less secure. According to UFC-Que Choisir, the disappearance of the medical questionnaire results in a price increase of between 8% and 25%.

In this period of high inflation, are you looking to commit savings? Since September 1, 2022, the Lemoine law allows any borrower to change borrower insurance, without waiting for the anniversary date of the contract. We speak of “infra-annual” termination. In force since June 1, for new contracts, it now applies to all contracts, regardless of their signature deadline. To change borrower insurance, nothing could be simpler. Once you have found the ideal contract, you must send a letter to your bank, which has 10 days to respond. She will send you an amendment to the contract that you will have to send to the new insurer. Consult our file without delay to find out more:

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