No one is surprised today by home or car insurance. This is because it is a normal activity that is related to securing your assets against the effects of various types of adverse events. It turns out that you can also ensure your cash or mortgage loan. However, does it make any sense? What is worth knowing about this topic?
Banks often offer their clients various types of additional services and solutions. When applying for a loan, the applicant finds out, for example, that he will have to set up a personal account at the bank. In turn, sometimes a credit card allows you to lower the interest rate on the loan. The same applies to term deposits. This is not a new phenomenon.
Credit insurance in practice
It is worth realizing that credit insurance is voluntary. However, sometimes banks in such a way construct a loan offer that incurring a liability without insurance turns out to be a very expensive solution for the future borrower. It is connected with a higher interest rate or an increased margin. Sometimes, banks require additional collateral or expect other borrowers to join the loan. See if you have a chance for a mortgage as a single.
On the other hand, you should be aware that life insurance for a mortgage is not a bad solution. The loan after the borrower’s death does not disappear and the insurance is able to ensure its repayment. In such a situation, the family does not have to deal with further repayment of financial commitment. Thus, life insurance is certainly an additional cost, but sometimes it can facilitate many situations.
It is also worth realizing that people who do not have a sufficiently high own contribution are sometimes forced to take out low own contribution insurance. Currently, regulations require the borrower to have a minimum of 20% own contribution.
Banks also use other collateral, e.g. bridging insurance until provision of information on making an entry in the land and mortgage register of this property, which is the loan collateral. It is also often necessary to ensure this property. In this case, the customer does not have to use the offer presented by the bank.
The choice on the market in this area is quite wide, so it has a lot to choose from. However, it is worth checking the bank’s criteria and expectations at the very beginning to choose the right policy. It is not that easy in practice, so many people decide to use the bank’s offer. They can be more expensive, but certainly simpler and faster.
Borrowers are primarily offered life insurance. If the borrower dies, the insurer must repay the remaining financial liability. In a situation where such insurance has not been purchased, the repayment of the loan must, unfortunately, be carried out by the borrower’s family. If there were several borrowers, the insurer pays only the part that was on the deceased borrower.
Sometimes in the case of mortgage loans, it is possible to refrain from paying for life insurance and it does not affect the general terms of the loan, but only after a few years of timely repayment. In addition, over time, when the sum to be repaid is getting lower, the sum insured is also reduced. The same applies to permanent disability insurance.
Insurance against the risk of losing your job and more
Banks are also increasingly offering insurance that provides protection against other types of risks. These include, for example, job loss insurance. In such a case, the insurer deals with the repayment of the financial liability incurred for the time specified in the contract.
During this time, the borrower can look for a new job. However, the loss of a job cannot be due to his fault, as is the case with disciplinary dismissal or due to his dismissal. Another type of insurance is accident insurance, temporary inability to work or long-term illness. They work in a similar way to unemployment insurance.
Before signing each insurance contract, you must of course carefully read the General Terms and Conditions. There are described situations in which given insurance will actually work and those in which the insurer will, unfortunately, have to refuse to take responsibility for a given financial liability.
Most often, the insurance company will refuse to take over responsibility for the loan when the borrower’s death occurred as a result of driving under the influence of alcohol, disregarding the safety rules or whether it was suicide. I am talking about life insurance, of course.
Similarly, if the death occurred as a result of a chronic disease of which the borrower knew but did not inform the insurer about it at the time of signing the contract. In addition, the insurer’s attitude is often affected by violating OHS rules, practicing various types of extreme sports that are not covered by the insurance, or undertaking other risky behaviors.
What else is worth knowing about credit insurance?
It is a bad decision to hide from the members of your immediate family the fact of taking out a loan or taking out insurance associated with it. It is worth remembering that if the loan is not repaid on time, the bank will start looking for opportunities to satisfy its claims. When the borrower is dead, his relatives will be asked to pay the financial liability. They will be forced to repay the remaining loan amount and any interest if any.
Of course, if the borrower has taken out loan insurance in the event of his death, the bank should, in theory, inform his relatives so that they can apply to the insurer with the appropriate application. However, there is no such legal obligation.
It should be remembered that repayment of a given liability before the deadline allows the borrower to apply for a refund of the part collected at the start of the insurance premium for the so-called unused loan protection period. The claim for this reason, however, expires after three years.
Credit insurance – yes or no?
For the lender, offering future borrowers to take out insurance is a kind of additional collateral. Then the credit risk decreases, that the money will not be returned to him. However, this is also acting in the interest of the client and his family, who in an unfortunate situation will have at least one less reason to worry.
So while, when the loan is taken only for a few years and rather a small amount of money, you can decide not to take out any additional insurance. However, if it is a mortgage, it should be normal for all borrowers to take out life insurance.