You have a project that you want to finance with a loan, and the establishment that accompanies you requests loan insurance. What does this insurance really consist of? It is a double protection, both for you (the borrower) and the organization that helps you finance your project (the lender). Is it compulsory? No. But the practice wants that it is very strongly recommended, and often imposed. Explanations..
Loan insurance is not a legal requirement
Regarding borrower insurance, also called loan insurance, the law is very clear. In terms of real estate, we learn that “insurance of a mortgage is not compulsory, but the lender can demand it, in particular with regard to the risks linked to death and invalidity ”.
Clearly, borrower insurance is not compulsory, but a financial institution can refuse you the granting of a loan if you do not take out insurance. Paradoxical? No, quite logical in reality. Because you have to understand how insurance works:
- It protects the bank against a possible failure to pay on your part;
- It also constitutes effective protection for you and your family, making it possible in particular to keep the property purchased on credit in the event of sudden loss of income, disability or incapacity;
- In the tragic case of death, borrower insurance provides protection for your loved ones, who will not have to settle your debts.
Generally, lenders require coverage for three main types of risk: death, illness and disability, and finally job loss.
Choose the right insurance when grouping loans
Although it is not compulsory, borrower insurance is almost essential for obtaining a loan repurchase. In this context, it is therefore essential to take care of the choice of this insurance, by orienting yourself towards the contract that is most suitable for you.
Banks, when offering a credit offer, can also attach a loan insurance offer. The lender can refuse to grant you a loan if you do not insure it, but it cannot, however, impose its insurance on you.
You have a free choice of establishment which will insure your loan. The only condition to be respected is that the insurance contract offered by a third party organization has a level of guarantees equivalent to that of the original lending institution (ie the bank). *
This is why we, IOB, who act as a broker, are looking for equivalent but cheaper borrower insurance for you. We then systematically offer you borrower insurance called “delegation insurance”, which means that the grouping of your credits would not be ensured by the bank itself but by a specialized insurer.
In fact, thanks to recent changes in the law (Lagarde law and Hamon law), you can freely choose your borrower insurance when signing the loan offer.
NB: Also note that in the context of a mortgage, if, for lack of time to complete the process or for the sake of simplification, you have taken out the insurance offered by the bank, you can change it. That is possible. Within 12 months of the signing of the loan offer, you can delegate insurance (change insurer) once again provided that the new contract has guarantees at least equivalent to the contract insurance of origin.
When buying credit, what is the cost of borrower insurance?
Do not neglect the insurance side of a loan. Indeed, the cost of insurance represents the second highest cost of a loan, after the cost of interest. It is therefore important to focus your attention on obtaining a good rate, reduced costs… but also good insurance!
The cost of borrower insurance varies depending on the risk that the insurance takes to support you. The price of insurance is calculated according to the extent of the guarantee (such as the disability rate beyond which it will come into play) but also according to the distribution of insurance on these.
In the case of a couple who wishes to obtain a repurchase of mortgage for example, it is thus possible to take out two separate contracts, with a more important guarantee on the borrower than on the co-borrower, let us accept 100% for the ” main borrower and 50% for the co-borrower.
But it is also possible to take out borrower insurance for the entire capital: 100 and 100%.
In the event of the co-borrower’s death, in the first case, the insurance will reimburse only half of the loan remaining due, while in the second case, it will pay the full amount due.
It all depends on health, or the age of those concerned, for example. Each profile is different. Each applicant has their own story.
Ask us for advice. We are able to offer you very good borrower insurance through our network of privileged partners.