Mortgage insurance: the most demanded linked product

Mortgage insurance: the most demanded linked product

In most cases, banks require one or more insurance to get a suitable mortgage. Here we explain when it is mandatory to sign these policies, their characteristics, and how much they can cost you. 

Is it compulsory to contract insurance with the mortgage?

According to article 17 of the renewed mortgage law, in force since June 16, 2019,  the bank can force us to take out particular insurance (known as a linked sale). Let’s see what they are: 

  • Insurance with minimum coverage for damage to the mortgaged property.
  • A policy to guarantee compliance with the obligations of the loan contract. For example, life insurance or payment protection

Now,  these insurances can be contracted with any company, not necessarily through the mediation of the bank. The law obliges entities to accept the alternative proposals presented by the client and prohibits them from making the mortgage more expensive if they take out the policy with another insurer.

Additionallythe bank can offer us optional insurance to lower the interest. In these cases, of course, we will have to sign them through their mediation to access that bonus (combined sale).

What is the insurance-linked to mortgages?

To get a mortgage with a discounted interest ratemany banks require that we take out one or more insurance policies. The reality is that no law prohibits them from doing so and, in general, these are the products that they usually offer:

  • Home: can be damaged or multi-risk. The first covers the house’s structure (the continent) and has an average cost of 150 euros per year. At the same time, the second also covers what is inside the home (the content) and costs between 200 and 250 euros per year, although It will depend on the conditions offered by each insurer.
  • Lifelife insurance linked to a mortgage covers the pending debt if the holder dies or a severe disability or total permanent disability prevents him from working.
  • Payment protection: this policy covers the payment of monthly payments in the event of unemployment or temporary disability of the borrower. It is one of the most expensive.
  • Car: in a few cases, we can also reduce the interest rate if we take out car insurance, either third party or fully comprehensive.
  • Health: it is very unusual, but a bonus may also be applied if we take out a policy that covers our medical expenses.

The price of these products can vary a lot depending on our profile, the coverage of the policy, and each insurer’s rates. We will generally know its actual cost when the bank provides us with its binding offer.

Four tips for hiring insurance policies

Insurance is a complex product that should be understood well before contracting it. Below, we present several tips that will help us appropriately analyze the policies proposed to us by both the bank with which we are going to sign the mortgage and the insurers we go to:

 We have to calculate if the interest reduction compensates us. It is convenient to calculate how much the mortgage would cost us without the linked insurance and its final price, counting the cost of the policies.

 We must analyze the conditions of the product and assess whether they are convenient. The Spanish Union of Insurance and Reinsurance Entities recommend taking into account the insurance coverage, the financial protection limits, and possible exclusions, as well as the date on which the contract clauses will begin to apply.

 It is convenient to compare the insurance offered by the bank with those of several companies. This way, we will ensure that we do not overpay for the policy.

 Single premium or PUF insurance is best avoided. The former involves a large initial outlay, while the latter are more expensive in the long run.

By Master James

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts

No widgets found. Go to Widget page and add the widget in Offcanvas Sidebar Widget Area.