O life insurance for home loan it’s not mandatory, but it won’t be easy to find a bank that gives you that choice. Even so, the law establishes a series of conditions so that the consumer has as much information as possible before taking out insurance.
Taking out life insurance when taking out a home loan is so common that many people assume that it is mandatory. However, and according to the law, the only really mandatory insurance is fire insurance, often contracted as multi-risk.
If life insurance for home loans is not mandatory, what explains why it is so common? The very nature of this insurance helps to understand.
It is seen by banks as a way of ensuring that the mortgage is paid in the event of the customer’s death or disability. For those who hire, it also turns out to be a way of ensuring that, in one of these situations, the debt is paid off and the family does not lose the house.
LIFE INSURANCE FOR HOUSING CREDIT? KNOW THE LAW
The law that defines the conditions for banks to be able to offer life insurance associated with housing credit emerged precisely because “the practice of credit institutions requiring, as a condition, sine qua non the granting of housing credit, the contracting of a life insurance contract”.
Although it considers “the concern of credit institutions to obtain the conclusion of such insurances”, the law intends to ensure that consumers are not harmed.
Thus, banks can request this insurance, but “minimum operating rules” are established to ensure that the relationship between bank/client/insurer ensures consumer rights.
These rules aim not only to ensure that the information provided is transparent, but also to ensure that customers are effectively free to contract. That is, banks do not oblige certain insurance to be carried out.
The law refers to life insurance contracts made to reinforce the guarantee of housing credit contracts, whether imposed by banks or made at the option of the consumer.
LIFE INSURANCE RULES FOR HOUSING CREDIT
If the bank wants to offer you life insurance – either as an essential condition for granting you the loan or just as optional insurance – it must include a minimum content and respect certain rules.
One of the most important aspects is that the insured capital must be updated as the debt is paid, which must be reflected in the value of the premium payable.
Another rule is that the insurance contract starts at the same time as the housing loan and, except in the event of a claim, ends when the loan is paid. And this is valid both for loans paid within the contracted period and in cases where there is an early repayment.
The law also prohibits the existence of penalty clauses if you withdraw from the insurance due to early amortization.
When life insurance for home loans is made for two
The value of life insurance must be equal to the principal owed. However, as we will see, this issue is being circumvented when a home loan is requested, for example, by a couple.
The law says that, if there is more than one insured person, the contract may determine that the insurance is triggered in the event of a claim involving any one of them, or only one of them. That is, it can stipulate that the house is paid only if the accident affects, for example, one of the couple’s elements; or that the debt is paid off regardless of the person suffering disability or death.
Even so, a life insurance contract cannot be requested by each of the borrowers, unless the contracts “do not fully relieve the insured of the debt”.
Half safe? Take care
Even so, and despite the law stipulating several conditions that aim to inform and protect the consumer, it never hurts to read carefully analyze and clarify all doubts before signing the contract.
One of the conditions you should pay attention to is whether the insured capital corresponds to the amount owed to the bank. If it is lower, in case of death or disability, the house is not paid.
There are life insurance modalities for home loans in which only 50 percent of the outstanding principal is covered. They are generally offered when the credit is applied for by two people and are cheaper than those that cover the entire amount owed.
You can choose this option, but don’t forget that, in case of death, accident or illness, the credit will not be paid.
INFORMATION TO BE PROVIDED TO THE CONSUMER
Banks and insurance companies are already obliged by law to comply with a series of rules, including information duties. In the case of life insurance for home loans, this duty is reinforced.
Thus, and even before signing the contract, the bank has a duty to inform customers and answer all their questions regarding insurance.
The law clearly states that this information must include the insurance contract exclusionsincluding pre-existing illnesses and pathologies, waiting periods and legal consequences of these two contractual conditions.
The consumer must also be informed about the payment of insurance premiums and contractual binding to the contract annuity.
The insurance is mandatory? Here’s what you should be told before signing
If life insurance is a mandatory condition for you to be granted a home loan, the bank has certain obligations during the pre-contractual phase.
You are obliged to declare that the conclusion of the housing credit agreement is dependent on the contracting of life insurance.
It should also inform that, in the event of death or disability (according to the coverage contracted) the compensation is paid to the bank.
The customer must also be informed about coverage and other minimum requirements that life insurance must comply with.
When informing customers of the need to take out life insurance for home loans, the bank must declare that they have the right to choose the insurer who prefer. And if they already have life insurance, it can be used as collateral for the loan.
Other mandatory information concerns the insurance transfer. That is, the bank must inform the customer that he can transfer the loan to another bank using the same life insurance. Or that, even keeping the loan in the same bank, they can take out a new life insurance contract.
The information to be provided must also include the simulation of associated costs for subscribing to housing credit. The customer must also know the value of the premiums to be paid.
Will you insure? All they should tell you
If the conditions presented by the bank for the life insurance for the home loan please you, and even if you decide to accept the proposal, the information duties remain.
If you decide to proceed with the contract, the value of the prize must be included in the simulation of the costs associated with the mortgage that the bank will provide you.
Even before signing the contract, you should receive a copy to review. This document must contain data such as:
- Identification of the insurer;
- Commercial name of the product;
- How to update the contract;
- Overall value and periodicity of payment of the premium;
- Other hiring costs, including administrative costs.
The life insurance contract must be delivered to customers together with the housing credit contract. Information relating to life insurance must be included in FINE.
UPDATE OF VALUE IN DEBT: HOW IT WORKS
The rules for life insurance for home loans also cover automatic updating of the amount owed.
Thus, the bank must inform the insurer about the evolution of the amount owed in the mortgage loan agreement. This information must be made in good time so that the company can update the insured capital and, consequently, the premium.
THE update is mandatory whether the insurance contract was concluded through the bank or with an insurance company chosen by the customer.
If your home loan life insurance was taken out before the entry into force of this law (December 2009), the update may not be done automatically.
- Electronic Journal of the Republic Decree-Law no. 222/2009: Consumer protection measures in life insurance contracts associated with mortgage loans