We do not always have the necessary funds for the purchase of real estate, be it residential property or business premises, for oneself or for rent. Apartment, house or offices, all at a price. The mortgage is often a necessary option for individuals as well as businesses that want to buy a property.
However, financial institutions usually ask for insurance when they take out the loan. It is therefore important to understand all the implications of this mechanism, in order to know how to make the best decisions and to make an informed choice at the right time.
Definition of mortgage loan insurance
Mortgage Loan Insurance provides coverage for the repayment of a loan, in case the borrower would not be able to honor its commitment. The unpaid bills will be covered by the insurance. It is therefore a guarantee required by the bank or the lending organization .
When you make a loan, especially for the acquisition of real estate, you still do not realize that there are other fees that come with the loan. This situation has a direct impact on the repayment plan since the monthly payments increase significantly, hence the need for insurance. When we know that several factors can influence the smooth running of the financial amortization, we must prepare accordingly .
Disruptive factors or risks include loss of employment and other related situations such as temporary and total work incapacity , known as the ITT. There is also permanent or total disability following an accident and death .
It seems obvious that banks or financial institutions can not allow such risks to hinder the payment of the sum borrowed. This is the reason why they require mortgage insurance that acts as a safeguard. It should not be surprising that almost all of these organizations have made it an essential condition for granting the loan.
The borrower insurance, how does it go?
This insurance works for both the bank and the borrower, but how? Quite simply, it covers the default that may occur on the part of the customer, for the reasons we have already mentioned.
In this case, the insurance company reimburses the amount borrowed or the capital, as well as the interest generated. This support may be integral or partial depending on the guarantees contained in the contract.
Insurance is a protection for the client, since it avoids legal problems, including the seizure of his property acquisition, for lack of payment. As a result, he also shelters his family and spares himself significant debts. The insurance in question therefore has a duration equivalent to that of the loan. This is essential for effective protection of the interests of both parties.
If there is one thing that the borrower should keep in mind, it is the fact that the cost of taking out credit insurance is an additional expense. Indeed the monthly premiums of the insurance come to inflate the payment of the interest at the expense of the borrower.
We are talking about an increase of 25% or 40%, which is added to what the individual or the company has to pay. With rates of this magnitude, it is vital that the insured takes insurance that guarantees the best possible coverage . He must carefully study the various options available to him before making a choice.
Real estate insurance, a choice to make
Among the financial institutions that most often lend, banks are most often found. These are the organizations to which borrowers turn spontaneously.
At the time of contracting the loan, the bank imposes as a prerequisite the subscription to a group insurance , a standard loan insurance available to almost all lending institutions. Many customers subscribe without thinking of the fact that they are free to opt for mortgage insurance of another type .
The good news is that this freedom is completely legal. Indeed, there are various laws that have been passed in the interests of borrowers, who have more margin. These are for example the Hamon and Lagarde laws that give full latitude to seek the services of a real estate broker or an insurer for his mortgage.
However, this option is only valid if the guarantees offered by these third parties have a value equivalent to those offered by the group insurance offered by the banking institution. This is an unavoidable condition that must be controlled by consumers.
Which mortgage insurance insurance to choose?
Before embarking on this adventure, it is necessary to study in detail the various offers on the market. The needs of customers are not the same, it is imperative that they choose the insurance according to their profile . Each contract or insurance policy has its own clauses. Although several companies may have common clauses, each offers specific conditions that the consumer must be aware of.
On our website, it is easy to consult price comparisons and guarantees. Free simulations are offered , as well as non-binding quotes. Another equally interesting option is to call on a domain expert, who has the skills to serve as a guide. He can then direct you to the contract offering the guarantees that best suit your interests and needs. This approach is especially recommended for those who have little or no mastery of this sector of activity.
Real estate loan insurance: a choice to make freely
Being able to freely decide on your mortgage insurance is very appreciated. But this peculiarity does not always allow the operations to be done on their own. It is not always easy for borrowers to choose the insurance they need.
That’s why many are content with the bank’s group insurance policy, or any other financial institution. If it is easy to accept this solution, it is not always the best since there are others much more interesting.
It would be better to think of an individual contract, with guarantees adapted to the situation of each individual . This allows you to make substantial savings, but also to have offers that can be adapted to his profile, especially since the group guarantees are almost identical. Thus, those who have a younger age group with good physical and mental conditions, come out winners.
There are certain laws that allow taxpayers to choose other types of insurance at three key moments, set by different regulations. There are three, including the Hamon law through which one can change insurance in the year following the signature of the loan offer. The customer incurs no penalty and can make this change at any time of the specified period, since July 2014.
There is also the Lagarde law passed in 2010 which allows the borrowing client to offer the services of another insurer provided that the latter has guarantees that are at least equivalent to those of the group contract of the lender organization.
Another rule favorable to this freedom of choice is that of the Sapin II law, introduced in February 2017. Its particularity lies in the fact that it offers a possibility of termination of the contract each time a year is added to the date subscription.
You must first take care to notify the bank or the financial institution responsible for the loan, two months before the end of the first contract.
The equivalence of guarantees: an essential condition
Whatever legislation is relied upon to choose another insurance, it is specified that the value of the different coverages offered by the other insurance companies must be at least equal to that of the collective contract. If this criterion is not met, the bank may refuse, without the right to add other fees or to increase the rate at which the credit is granted.
In addition, the lending organization has the obligation to formulate in detail its different requirements for the borrowing client. It passes for this by a standard card of information on which the consumer can be based to begin or to update the comparison of the different offers on the market.
He must be able to have it in his hands as soon as possible, already at the time of the pre-loan offer. The main details to be included on the sheet are:
- the amount, duration or other characteristics of the loan;
- the rate at which the loan is granted, as well as the details of the guarantees;
- the cost of insurance;
- the freedom, or the right, of the client to choose another insurer.
These different details must be clearly communicated in order to avoid any risk of confusion. To avoid excessive misuse by banks or lenders, a structure has listed different differentiating criteria. This is the Financial Sector Advisory Committee ( FSAC ). In total, there are 18 criteria for conducting a better comparative study of insurance contracts.
If there is one thing that is clear in the insurance industry, it is price fluctuation . So you only have to be old enough to pay double the premium you would have paid 2 years ago. In addition to age, there is also the state of health that has a significant influence on fares.
Good physical and mental conditions can be used to reduce premiums. The term of the loan is also a fundamental factor that can affect the cost of insurance. To get an idea of the rates charged, it is recommended to make a comparison by asking for quotes from various insurers.
It is thus possible to determine what is the best offer in relation to its profile and its needs. Generally, we can see on the market that the lowest mortgage loan insurance rates are around 0.20% and 0.65% .
Real estate loan insurance: for which guarantees?
One should not choose an insurance only on the price that it proposes. Although this is an important criterion, the guarantees offered in the contract must also be taken into account. They are a hedge against the various risks that may hinder the repayment of a loan.
It is therefore necessary to measure the different specificities and make a decision accordingly. It must be remembered that there are different types of guarantees, those that are mandatory and those that are optional.
What are the mandatory guarantees?
There is :
- the IPP guarantee (permanent and partial invalidity): it intervenes in case the customer finds himself unable to perform the professional activity specified in the insurance contract. The PPI belongs to the first category of Social Security and triggers the reimbursement by the insurer of part of the monthly payments, based on the calculation of the disability rate which can vary between 33% and 66%.
- the IPT (Permanent and Total Disability): a guarantee that applies to insured persons with a physical or moral disability, preventing them from engaging in a gainful activity. Belonging to the second category of Social Security, his statement must be made before the age of 65 years. Here, the assumption of the insurer is based on a contractual disability rate of between 66% and 99%.
- the PTIA (total and irreversible loss of autonomy): a guarantee that requires the intervention of a professional who judges the complete loss of autonomy, before any support. Classified in the 3rd category of Social Security, it is also imperative that it be established before the age of 65 years. This disability concerns people who are unfit to engage in any paid activity and who need assistance in their daily lives. The insurer is responsible for paying the total of the installments, according to the given quota.
- IP PRO (Occupational Disability): This guarantee covers the risk of total and, above all, permanent incapacity of medical professionals to exercise their profession. The paramedical corps and veterinarians are also concerned by this coverage. The insurance company pays the full amount of the outstanding capital, subject to a professional disability exceeding 66%.
- the death guarantee is also part of the cover that can benefit any candidate for a mortgage. In this case, the insurer only intervenes in the event of the death of his client before the end of the loan agreement. It pays for all the installments in relation to the insured portion.
Insured persons are reminded of the specificity of the guarantees relating to temporary or total incapacity for work and to permanent or total disability. In these 2 cases, the client must check the box of the clause “his professional activity”, and not “any professional activity”, to avoid any risk of interpretation. He can thus be covered even if he exercises another activity.
What are the optional guarantees?
There are usually 2 of them, including:
- ITT (Temporary incapacity for work); which may be consequential to an illness or accident. In this case, a reimbursement or lump sum reimbursement is provided, knowing that the work stoppage must not go beyond 1095 days (3 years). After this time, we fall into the category of disability benefit.
- In the event of dismissal , a loss of employment benefit applies which may also concern the conventional break, but not always. This guarantee can not be evoked if the dismissal is caused by gross negligence or resignation.
Conditions in which the guarantees do not apply
These conditions are referred to as “exclusion of warranty”. They are often found in bold, in color or in a particular font, since insurers are required to display them clearly.
In this category, we can cite the mental disorders considered by insurers as “non-objectifiable” diseases. They may result in non-application of disability and disability guarantees. However, there are some situations related to these diseases, in which the client can be compensated.
He can claim if he has undergone surgery or hospitalization for more than ten days, because of the said disease. These non-objectifiable diseases can be taken into account in some contracts if you pay a higher premium.
Various factors related to the guarantees of borrowing contracts
Both in the clauses and in the specificities of the guarantees, one discovers certain elements which can impact the amount of the premiums or the assumption of responsibility. Among other factors, there is an age limit from which certain guarantees are no longer covered by the insurer. This limit is generally between 65 and 75 years old . Insured persons can still claim cover for sick leave or disability.
There is also the insured portion which concerns the total or partial assumption of the loan. When a claim occurs, coverage is based on a given percentage, relative to the insured portion. If the guarantee covers the entire loan, we are talking about a 100% quota.
A couple wishing to obtain a loan could choose a percentage of 100% to be sure to have a full payment of their credit if the death of one of the partners occurred before the end of the repayment. However, they can subscribe to a proportion of equal shares or 40% for one and 60% for the other.
There is a limit of care, especially in the case of a job loss or compensation is limited between 12 and 24 months.
Other terms and conditions relating to borrowing contracts also include indemnity and lump sum indemnities that apply to loss of employment, work stoppage and disability. The indemnity guarantee is the one by which the insurer deals only with the income lost by his client.
If the latter receives assistance or has access to other income from other contracts, these different amounts are deducted from what the insurance will pay him. On the other hand, the flat-rate guarantee requires a fixed payment on the basis of a percentage of the remaining reimbursement.
The guarantee ceiling and the deductible are also part of the terms of a borrower insurance. The first one concerns a limit of the indemnities perceived by accident or over a year, while the second concerns a period during which even in case of occurrence of the disaster, there is no assumption of responsibility.
It can vary between 30 and 180 days for the disability guarantee and 40 and 180 days for the loss of employment. At the beginning of the contract, the insurer can activate a waiting period during which it does not apply any cover. For example, for the loss of employment, the waiting period is of the order of 3 to 12 months when the contract is signed.
Various steps to subscribe to a borrower insurance
To subscribe to an insurance, the customer is first given a standardized information sheet that gives him an idea of the different guarantees required by the bank. The same procedure is carried out with the insurer to allow the consumer to judge more objectively the various offers made to him.
The client also has access to a personalized form given to him after his loan file has been carefully studied. It is thanks to this card that he becomes aware of all the guarantees he will have to provide in order to benefit from the funds requested. It is this same card that will allow the insurer to adapt its offer so that there is, at least, an equivalence of the guarantees between the lender and the insurance, if the borrower decides to choose another.
Various information to communicate to the insurer
It is important for the borrower to share certain information with the insurance company so that the insurance company can set the premium and the different guarantees of the contract. He is therefore required to complete a health questionnaire or undergo medical examinations, if deemed necessary by the insurer. It is necessary to be completely frank and not to hide any information, at the risk of not taking care in the event of disaster or a cancellation pure and simple of the contract.
How to activate the borrower insurance?
In the event of a claim, for example, the insured must send a declaration to the insurance company in the form of a registered letter. It can also be sent to the lender who will send it to the insurer. This declaration must be made within a specified period of time in the contract, so as not to risk being refused a payment of compensation.
What to do in case of litigation?
In this case, the client can apply to an organization working as a mediator in the sector or the customer service of the company to make claims. There may also be disagreement with the state of disability or disability. There, it would require the intervention of a medical expert, engaged by the care of the insured. If the disagreement persists, a third expert is called upon.
Insurance for people with serious and chronic illnesses
For these people, subscribing to an insurance contract is either impossible or very complicated. Even if they manage to find an insurance company, the guarantees offered are very small. To mitigate this situation, the AERAS convention has been set up and aims to simplify access to loan insurance for those concerned.