Why take out loan insurance?
Contrary to popular belief, signing loan insurance is not a mandatory formality before taking out a mortgage. In practice, however, the approach is almost systematically requested by the credit agency. It is one of the usual conditions linked to the sending of a loan offer.
Insurance is a guarantee both for the lending institution and for the borrower himself. Its function is to assume the payment of the monthly installments – or even the full repayment of the credit – if an event provided for in the contract occurs.
What type of loan insurance and what guarantees to choose?
Take the time to compare several offers before making your choice. From one insurer to another, the price difference can be substantial. Two options are available to the borrower:
Group insurance or “group contract” corresponds to the formula generally offered by the lending institution itself. It is distinguished by a common rate, negotiated for all of the institution’s borrowing customers. This solution is therefore practical but not very flexible.
The delegation of insurance, recognized since the Lagarde law of 2010, consists of subscribing to a contract with a third-party insurer. The lending institution cannot oppose it if the contract offers equivalent guarantees. This alternative may seem more complex but it often allows the realization of substantial savings by borrowers with the best profiles.
The guarantees offered in loan insurance are as follows
The death of the borrower is always included, although certain causes of death such as suicide may be excluded. In the event of premature death, the insurer reimburses the loan (according to the subscribed quota)
The total and irreversible loss of autonomy (PTIA) is also a guarantee that is systematically present. In this situation, the borrower survives, but is unable to carry out any gainful activity permanently. He must also be assisted in the gestures of daily life.
The total permanent disability (IPT) or partial (IPP) corresponds to a physical or mental pathology depriving the borrower of the possibility of exercising totally or partially his profession or any profession (according to the terms of the contract).
Temporary incapacity for work (ITT) is also part of the current guarantees. It applies when the insured is temporarily unfit to exercise his professional activity following an illness or an accident and makes it possible to ensure the repayment of the loan in the event of a drop in income during this period.
Loss of employment is more rarely included in the risks covered. If you wish to benefit from it, carefully check the conditions for implementing this guarantee in the contract.
Loan insurance quota: how does it work?
Do you borrow as a couple? It is possible to determine a different quota for each co-borrower, expressed as a percentage. The total of the two quotas must be at least 100%. For example, if two spouses are insured up to 50% each, the death of one of them will result in the reimbursement of 50% of the loan by the insurer.
How is the cost of loan insurance determined?
The price of borrower insurance is determined by various factors:
• the age of the borrower;
• his state of health, determined by a medical questionnaire to be completed;
• the amount of capital borrowed;
• the guarantees taken out;
• his professional situation, in terms of stability but also the dangerous nature of the profession exercised;
• any sports & hobbies deemed to be at risk
Take the time you need to choose the right loan insurance and compare several quotes. The quality of your contract will determine not only the savings made, but also your level of protection in the event of a hard blow.