Have you heard of mortgage life insurance? Within life insurance there is a key policy, linked to the mortgage.
For most banks, having this “protection” is a fundamental requirement when signing any mortgage. But what many people don’t know is that we do not have to accept the product offered to us by the bank..
In this article we are going to take a closer look at mortgage life insurance: from what this type of insurance covers type of life insurance to how much it is worth, whether it is mandatory and the possibilities you have to compare options in different companies.
What is mortgage-linked life insurance?
A life insurance mortgage-linked is a type of policy that we take out to protect the payment of a mortgage in the event of the death of the holder.
This guarantees that the mortgage debt will be covered in full (or a significant amount) in the event of an unexpected event, relieving the family of the financial burden it could entail. Typically, policies of this type are designed to decrease in value over time as the mortgage debt also decreases.
Although these insurances are usually mandatory when applying for a mortgage, there are cases in which you can choose to take it out voluntarily. Likewise, there are different types of policies linked to the mortgage, and it is important to understand the coverages they offer and the conditions associated with them before contracting one.
What does mortgage life insurance cover? Types of coverage
Life insurance linked to a mortgage loan protects the mortgage holder’s family and loved ones against the debt that would be generated if the mortgage holder were to die. In addition, optionally, it can also cover permanent disability.
These are the main life insurance coverages:
- Death (Primary Coverage).
- Absolute and permanent disability. It is optional and is hired from time to time.
- Occupational and permanent disability. It is optional and, although it is very necessary, it is almost never contracted by banks.
- Additional capital for death or disability caused by an accident (Optional).
The issue is that, on many occasions, the only one who is protected is the bank through this policy, since it is usually only the death coverage that is taken out to pay off the loan, with no additional capital left for the family members.
Why take out life insurance with the mortgage?
What could happen if the person who signed the mortgage dies? As we have already mentioned, mortgage life insurance was created to avoid leaving the couple or the whole family unprotected against this type of debt.
If the person who has signed the mortgage dies, the mortgage life insurance will be activated and will pay the insured amount to the beneficiaries mortgage life insurance will be activated and will pay the insured amount to the beneficiaries designated in the policy. This amount will be used to cover the outstanding mortgage debt, thus preventing it from falling on someone other than the deceased.
In addition to death coverage, some mortgage life insurance policies also provide coverage for disability. Thus, if the policyholder becomes permanently disabled due to an illness or accident, the policy may pay a pre-set amount that will help cover the mortgage payments, the policy may pay a pre-set amount that will help cover the mortgage payments.
It is important to note that the details and specific coverage may vary depending on the insurance company and the policy taken out. If you want to ensure adequate protection, you will need to read the terms and conditions carefully before signing a mortgage life insurance contract.
When can the mortgage life insurance be taken out?
This type of insurance can be taken out at different times, depending on the circumstances of each client.
Generally, It is generally recommended to take it out at the time of signing the mortgage, to protect the family if the holder dies unexpectedly.
However, However, some financial institutions allow it to be contracted at any time during the life of the loan. It is even possible to do so after the fact, if the mortgage holder decides to purchase life insurance afterwards to cover his debt.
Is it mandatory to take out life insurance on a mortgage?
It is not mandatory, but many banks require their customers to have life insurance in order to receive a mortgage loan.
According to the mortgage law (Law 5/2019, of March 15, 2009, regulating real estate loan contracts (), your bank can require you to contract it, but cannot force you to contract its policy.
In other wordsthe law protects you so that you can compare different mortgage life insurances and choose the one that offers you the best conditions..
In this sense, PIB Group Iberia helps our clients to choose the best option for their mortgage life insurance. best option for their mortgage life insurance.. And, in fact, most of the time it usually does not match the one offered by your bank.
In any case, taking out a mortgage without life insurance is not usual, since it guarantees the family’s financial stability. In addition, having life insurance can also be beneficial for the loan holder, since it can include additional coverage, such as compensation for serious illnesses, online will preparation or second medical opinion, among others.
On the other hand, something that the legislation does contemplate is that, when taking out a mortgage, as a minimum, you must have an insurance policy that covers damages caused by fire.. In practice, the home insurance and life insurance are usually taken out together to complement this minimum fire protection.
What happens when there are two incumbents?
There are two options when it comes to agreeing a life insurance of this type: to contract 100% of the capital loaned to the same holder or, if there are two people receiving the mortgage loan, 50% to each one. Everything will depend on the bank and the people who take out the loan.
Of course, if the insured so wishes, this insurance can be extended in the contractable sum insured. For example, if your personal situation requires more capital or if you want to take out additional coverage.
Mortgage life insurance premiums
Premiums are the payments you make to the insurer in exchange for the coverage it offers you. Premiums can be paid in different ways: monthly, quarterly, semi-annually or annually.
There are several types:
- Level premium: The premium amount remains constant for the duration of the policy. It is a good option, but it is usually more expensive in the short term.
- Natural or risk premium: The premium increases with the age of the insured. It is cheaper initially, but can become expensive over time. It is the most common option.
- Single premium: A lump sum is paid at the beginning of the contract. This option is less common, and tends to be quite detrimental to the contracting party.
Calculate the price of life insurance with mortgage, how much does it cost?
To calculate the price of life insurance for mortgages it is necessary to take into account 3 main factors before contracting it:
- The age of the people who take out the insurance and who have taken out the mortgage. The price changes substantially if the clients are in their thirties or over 50 years of age.
- Coverage. If they only protect against death or if they offer a more complete option that also includes permanent disability.
- Subscribing entity. As we told you in a previous article, life insurance can be 30% more expensive at the bank than at an insurance company..
Mortgage life insurance taxes and surcharges
When we talk about mortgage life insurance, we often focus on premiums and coverages, but there is one aspect that often goes unnoticed: taxes and surcharges. These items increase the total cost of your policy and affect your long-term budget. They are, for example:
- Insurance Premium Tax (IPS). In Spain it is 6% and is applied to the net premium.
- Compensation Surcharge. It is paid to the Insurance Compensation Consortium and is mandatory. Its rate varies according to the type of insurance, but for life insurance it is usually 0.15% of the net premium.
- Insurance surcharges. Some companies apply additional surcharges for handling, administration or even payment in installments.
Mortgage life insurance: price isn’t everything
In addition to these factors, other aspects must also be taken into account when calculating the premium. other aspects, such as the sum insured, the duration of the insurance, the interest rate in the event of instalment payments and any pre-existing conditions, must also be taken into account when calculating the premium. These points can directly affect the cost of mortgage life insurance.
It is important to know the best life insurance policies and request quotes to be able to choose the alternative that best suits your needs and requirements.
Is it better to contract it with your bank or with the insurance company of your choice?
In the latest INESE comparative study of life insurance risk premiums, conducted in 2022, the data show significant differences between insurance companies and banks.
According to this analysis, the average premium is 446.86 euros for bank insurers and 249.26 euros for insurance companies. In other words, taking out insurance with your bank can cost you up to 79% more.
Likewise, in the last year of the analysis, insurance companies lowered their prices (by 2.5%), while banking-insurance operators raised their prices (7.6%).
How to compare insurers in mortgage life insurance?
As you can see, mortgage life insurance is a choice that can end up affecting your pocket year after year. So that you don’t overpay and you can take out the policy that best suits your needs, it is necessary to to compare several insurance companies to see if the offer is better than the one offered by your bank..
In this sense, in order not to have to go looking at the companies one by one, the best option is to resort to a brokerage, a “flesh and blood” insurance comparator, which will allow you to consult all the details with a professional, who has the independence of being able to recommend the most advantageous policy among more than twenty companies.
Your mortgage commitments
When you are comparing mortgages, something to study, beyond the interest rate, is what the banks require you to sign with them.
It is important that, when negotiating negotiation of your mortgageto negotiate your mortgage, you should try to have as few as few strings attached as possible..
There are banks that ask for up to 5 or 6 linked products: salaries, direct debit of bills, contributions to investment funds or pension plans, medical or car insurance, life insurance, home insurance… All this to lower the interest rate, but entailing enormous additional costs for the family.
On the other hand, there are banking options that, at present, are demanding fewer linked products, thus favoring the consumer’s freedom to contract what he wants and needs. That way, you will be able to choose the life insurance where it suits you best, without thinking about the detriment it has on your mortgage interest rate.
How to claim mortgage life insurance?
Claiming mortgage life insurance is a relatively simple process, but it is important to follow a few steps to make sure you get the right compensation.
- First, it is essential to notify the insurer of the mortgage holder’s death as soon as possible. Normally, you will need to submit a copy of the death certificate and any other documentation required by your insurer.
- You will then need to fill out a claim form that makes clear the details of the mortgage loan and the designated beneficiaries. If needed, you can request a copy of the mortgage contract and any other relevant information.
- Later on, the insurer will proceed to evaluate your claim and make a decision on compensation.
- If everything is in order and the requirements of the contract are fulfilled, the company shall pay the corresponding indemnity to the designated beneficiaries. company must pay the corresponding indemnity to the designated beneficiaries. If you have any doubts about the claim process, your insurance broker can offer you personalized advice.
Can I cancel my mortgage life insurance with my bank?
Insurance policies are renewed every year, so before this renewal you can cancel or return yours to the bank and take out the insurance policy of the insurance company of your choice. Of course, you will have to notify your bank one month in advance.
In fact, a common practice is to subscribe it the first year with the bank, but then change it to a brokerage company. brokerage such as PIB Group Iberia. Even so, you can choose from the beginning to decline your bank’s offer, something that not many people are aware of at the time of signing the mortgage.
If you are looking for help and advice to contract this type of policy, do not hesitate to contact PIB Group Iberia. We have many years of experience and we look forward to helping you.
