Loan insurance: what you need to know before taking out

The role of borrower insurance is to guarantee the lending institution to collect all of the credit repayment deadlines in the event that the debtor finds himself unable to settle the loan (death, illness, unemployment, etc.)..).

Loan insurance is not compulsory but the credit institution may require it to validate the loan to ensure that the loan will be reimbursed in full by the insurance company – whatever happens to the borrower.

What exactly does loan insurance cover?

Loan insurance allows the organization to protect itself from the repayment of credit in the event of:

  • Death of the borrower : in the event of the death of the insured, the death guarantee allows the reimbursement of the principal amount owed on the loan instead of the deceased. Thus the relatives of the deceased are exempt from any obligation to repay and become the owner of the property.
  • Invalidity of the insured : if after the subscription of the loan, the insured finds himself in a situation of invalidity and therefore unfit to exercise a professional activity, the invalidity guarantee comes into play to allow the borrower to repay his mortgage.
  • Job loss : despite the standard of living in which the borrower took out the loan, the ups and downs of life mean that he can be dismissed by his employer. In this case, loan insurance provides for the repayment of credit maturities.

Please note, depending on insurance contracts, the conditions of its guarantees may vary.

Items to check in the loan insurance contract

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The amount of the loan insurance premium varies according to several criteria but in particular with the deductible and the waiting periods.

The deductibles of the borrower insurance

The deductible fixes the period during which one or more borrower guarantees do not work.

Example:

Paul is employed in a shoe business and took out a mortgage in 2008. He lost his job due to an economic layoff. Thanks to his loan insurance, the job loss guarantee will come into play and reimburse the credit maturities during his unemployment spell.

But beware, the deductible in his loan insurance contract is set at 90 days, the insurance company will then compensate Paul’s lending establishment from the 91 days.

The waiting period

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This is the period during which the warranty does not apply. The waiting period applies as soon as the insurance contract is signed and can have a duration of 1 to 12 months depending on the insurance company. The waiting period begins when the borrower insurance contract is taken out. In other words, a claim that takes place during this period will not be compensated to the insured.

The payment of deadlines then begins at the end of the waiting period. You will understand, it is advisable to study its loan insurance contract before committing. Note that if you are already engaged, you can terminate from one year of contract on January 1, 2018!

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