Real estate credit: all about borrower insurance


Borrower insurance: the subscriber must generally complete a health questionnaire photo credit: GettyImages

For almost all mortgages, the lender asks the buyer to take out borrower insurance. This covers the repayment of the loan installments in the event of the borrower’s default and the impossibility of honoring his repayments. Death, total and irreversible loss of autonomy, disability, job loss… the risks covered are diverse. Borrowers will benefit from better transparency of information concerning guarantees and the rates charged by insurers.

Summary:

  • Real estate credit: can the lending institution require borrower insurance?

  • Borrower insurance: why a medical questionnaire?

  • Death, disability, loss of employment… what risks are covered by borrower’s insurance?

  • Borrower insurance: increasingly transparent guarantees and prices

Real estate credit: can the lending institution require borrower insurance?

A borrower remains free to take out insurance, but for a mortgage, insurance is almost systematic. Given the sums at stake, it seems important to cover yourself against unforeseen situations. It is a guarantee for the borrower and for his relatives, not just for the lending institution. The lending financial institution may require the subscription of a borrower’s insurance and is not required to lend if the applicant does not submit to it. Indeed, there is no legal obligation to guarantee obtaining a loan.

Generally, financial institutions accompany their mortgage proposal with an offer of borrower insurance. However, it is possible to refuse it and choose another insurer. For this, the insurance contract must present conditions at least equivalent to those offered by the lending institution. If the counter-proposal does not meet this strict condition, the lending institution is not required to accept the change.

To know

For consumer credit, taking out borrower insurance is rarely required.

Borrower insurance: why a medical questionnaire?

For loans of more than 200,000 euros, the insurer asks the borrower to complete a medical questionnaire intended to assess his state of health. It allows him to calculate the risks of illness or death. It is recommended that you respond in good faith and not omit or obscure important information. Any omission or misrepresentation may result in the nullity of the insurance contract.

The health questionnaire normally consists of fourteen questions which you must answer with yes or no. If you answer “yes” to all the questions, the company sends you a direct and definitive proposal. If you answer “no” to one or more questions, the insurer will ask you for additional information or to undergo medical examinations (blood test, for example). Other personal information may also be requested, such as, for example, history, current illnesses and treatments, weight, height, or blood pressure of the borrower(s).

Medical examinations may be required if the amount borrowed is large or if you are considered advanced in age. To obtain a rapid response from the insurer, consider attaching any documents that may support your file to your health questionnaire (prescriptions, hospitalization reports, specialist consultations, x-rays, scanner, etc.).

What is the right to be forgotten?

The right to be forgotten allows borrowers who have had cancer or hepatitis C not to mention this disease if the loan subscription takes place more than five years after the end of their treatment, without relapse. In addition, some financial institutions are now choosing not to require a health questionnaire for “loyal” customers.

Death, disability, loss of employment… what risks are covered by borrower’s insurance?

In the context of borrower insurance, the insurer must attach to the contract a notice summarizing the guaranteed risks. Generally, warranties relate to the following situations:

  • Death. This is a basic, mandatory guarantee. In the event of death, the capital remaining due is paid by the insurer to the lending financial institution.

  • Total and Irreversible Loss of Autonomy (PTIA). It is also a compulsory basic guarantee. Under certain age conditions, the outstanding capital is paid by the insurer to the lending financial institution.

  • Temporary Total Work Disability (ITTT). Reimbursement of installments by the insurer occurs after a waiting period and is generally limited in time. This clause and the assumption of this warranty are not binding.

  • Job Loss. The reimbursement of installments by the insurer is limited in time, often two years. Only holders of a permanent contract (CDI) with significant seniority in their position are generally covered. Coverage of this warranty is optional.

Borrower insurance: increasingly transparent guarantees and prices

Under pressure from the Ministry of Economy and Finance, bankers and insurers have decided to improve the information provided to borrower insurance subscribers. It is a question of being more clear and transparent on the guarantees and their amount, in particular for the guarantee invalidity, principal reason for complaints of the borrowers. The insurers have undertaken to do so, without however confirming a timetable, and it will now be explicitly indicated whether the disability guarantee refers to the notion of disability recognized by Social Security. In addition, insurers will be required to display the cumulative amount of premiums after eight years of subscription (average shelf life of a mortgage). These clarifications are intended to allow subscribers to determine whether it is in their interest to opt for a monthly payment calculated on the capital borrowed (in this case, the premium is fixed) or that remaining due (in this case, the premium is degressive). This second option is interesting if you plan to go after your loan only.

Towards a termination at any time?

In parallel with the transparency requirements, the Economic Affairs Commission of the National Assembly adopted a bill in favor of infra-annual termination. The objective is to allow borrowers to cancel the insurance associated with their mortgage at any time. Indeed, at present, termination is possible once a year and only on the anniversary date of the contract. Moreover, the objective of the legislator is also to promote competition between offers. Currently, 85% of policyholders ask their bank to take out their borrower insurance. For the promoters of the law, the measure could allow borrowers to make between 5,000 and 15,000 euros in savings on their mortgage. On the other hand, for banks and insurers, this text risks on the contrary compromising the principle of risk pooling. According to them, this could result in discrimination against the most vulnerable profiles.

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