What is the use of lenders insurance?
Required by credit unions, borrower insurance covers the latter, while the bank guarantees repayment of monthly payments in the event of death, disability or hospitalization. The mortgage insurance therefore protects both the bank, the borrower and his family.
It is not compulsory insurance, but no bank will issue a loan without it. However, the latter must comply with certain obligations, such as providing the borrower with an FSI, namely a standardized information sheet informing:
- the costs of the insurance offered by the banking group
- the guarantees it provides
- the minimum guarantees imposed by the bank
- option for the borrower to choose delegation of insurance, i.e. choose a different insurance than the one offered by the bank
Note that the guarantees required by the banks can vary significantly from one place to another and that this affects the costs. To get a reliable estimate, taking into account the desired minimum coverage, many websites offer to do a mortgage insurance simulation and to be able to put your bank in competition to halve the price of the loan insurance.
Which guarantees should you choose for your borrower’s insurance?
Mortgage insurance consists of several guarantees, some of which are imposed by the lender and others are optional:
- The guarantees IPT (Total Permanent Disability) and ITT (Total Temporary Incapacity for Work) cover part of the loan installments when the borrower is unable to work or is exposed to a disability of more than 66%.
- The IPP guarantee (Permanent Partial Invalidity) allows repayment of part of the installments to the bank in case of invalidity greater than 33%.
- Job loss cover is intended for people who have been on a fixed-term contract for less than a year. It allows for repayment of part of the installments if the latter becomes unemployed. Please note that there is a waiting period of between 3 and 6 months and that this guarantee, fortunately not required by the banks, is very expensive.
- Death and PTIA guarantees (Total and Irreversible Loss of Autonomy) make it possible to reimburse the bank for the remaining due capital when the borrower dies or becomes seriously disabled after an accident or serious illness.
What to look for under the conditions
of his mortgage insurance?
Certain elements must be carefully examined when signing a borrower’s insurance agreement:
- Compensation in case of damage: this can be a replacement compensation or a fixed compensation, with the first most often offered by banks and less reassuring than the second.
- Exclusions: these are situations deemed too risky and not covered.
- Waiting periods and excess: The waiting period varies according to the contracts and indicates a period during which the borrower does not receive compensation in the event of damage. As for the deductible period, this is the period between the date of claim and the start of coverage, which can last from 3 to 9 months.
Can we take out insurance outside the bank?
Since the Lagarde Act, it is quite possible to insure a mortgage loan outside the lending bank. We are talking about delegation of insurance or external insurance. This must also be mentioned on the loan offer.
Using a delegation of insurance can be very beneficial to the borrower by allowing him to lower his loan insurance rate significantly. By comparing different offers, he can actually benefit from higher guarantees, and this at a more attractive price. More and more borrowers are choosing this option, which allows them to save an average of 50% on the insurance price, while also being better protected. This solution also allows for better personalization of guarantees than by signing a standard contract offered by a bank.
Is it possible to change insurance during the loan?
Thanks to the Lemoine Act of 2022, any borrower can switch insurance during the loan. To do this, you must send a letter with the new contract to your bank. It must respond to it within 10 working days under penalty of having to pay a fine of 3,000 euros. The only reason the bank can refuse is an insufficient level of guarantee. The latter must actually correspond to the original contract. There are specialized platforms like Reassure Me that can take care of everything for you for free.
What are the criteria that vary the price
The price of loan insurance varies according to various criteria, which are:
- the size of the coverage taken out
- the age of the borrower(s)
- the state of health of the borrower(s).
It is often thought that group insurance is less advantageous financially, but this is not always the case. In fact, this type of contract is calculated without taking into account the criteria regarding age and health. For a borrower who is considered to be at risk, this can therefore be an advantageous solution. On the other hand, delegating insurance for young people in good health will certainly be a more sensible choice as it will enable negotiation and playing the competition.
It is therefore not easy to take out borrower’s insurance if you want to be covered, as well as your relatives, in an optimal way, without it reducing the cost of your credit.