Taking out loan insurance is a mandatory condition for obtaining a mortgage. This coverage is intended to guarantee the repayment of said credit in the event of default by the borrower, in certain cases. However, its operation, as well as the associated legal provisions, are still poorly understood by many borrowers. Our experts will explain everything to you in detail in this short, practical guide.
Why is it necessary to take out mortgage loan insurance?
Also called borrower insurance, mortgage loan insurance protects both parties involved in a mortgage loan agreement. For the borrower, it offers a contingency cover throughout the loan repayment period. In particular, it avoids the implementation of surety or mortgage that could lead to the sale of goods in the event of unpaid bills.
To the lender, it guarantees the repayment of the borrowed capital, as well as the interest, even in the event of the debtor’s incapacity.
In its formulation, borrower insurance includes mandatory guarantees and optional guarantees.
Home loan insurance: mandatory guarantees
At a minimum, banks require the subscription to the following guarantees before accessing a mortgage:
- Death guarantee : this guarantee provides that in the event of death before the end of the reimbursement of the capital, the insurer pays the remaining capital due to the bank. Consequently, the beneficiaries are released from any repayment obligation. The latter can immediately enjoy the property left by the deceased.
Note, however, that this guarantee excludes cases of suicide in the first year of repayment of the credit, an overdose or death following the practice of an extreme sport;
- The PTIA guarantee (Total and Irreversible Loss of autonomy) : if the borrower completely loses his autonomy and needs the intervention of a third party for at least three daily acts, the insurer then takes over to reimburse the bank.
Optional guarantees
These guarantees are not mandatory, but they are strongly recommended:
- The IPT guarantee (Total Permanent Disability) : it is strongly recommended for people working in high risk occupations.
In the event that the borrower is the victim of total permanent disability with a disability rate greater than 66%, the insurer then reimburses the rest of his mortgage;
- The IPP cover (Permanent Partial Disability) : this guarantee is similar to the previous one except that here the degree of invalidity concerned is between 33% and 65%;
- Temporary work interruption guarantee : with this guarantee, the insurer takes over and reimburses the mortgage to the bank in cases where the borrower loses his job.
Can we change borrower insurance?
Yes ! It is possible to change borrower insurance. However, the procedure to follow and the conditions to respect depend on the stage where real estate.
Delegation of insurance upon subscription
When taking out a mortgage, banks make a group insurance offer, the guarantees of which are detailed on a standardized information sheet (FSI).
The Lagarde law authorizes you to decline this offer and to take out individual insurance. The only condition to respect is that the guarantees offered by your new insurance are at least equivalent.
To find borrower insurance that meets your needs at the best price, use the comparator available on mortgage-loan-insurance.com
The change of insurer after the first 12 months
Hamon law has, for its part, made it possible to change borrower insurance at the end of the first year of credit repayment. To benefit from it, you must follow the following three steps:
- Choose and subscribe to borrower insurance offering at least the same guarantees as your current insurance;
- Send your insurance certificate to your bank. The latter will give you an answer within 10 working days from the date of receipt of the letter.
This response must include the amendment to the mortgage loan updated with the new Global Effective Rate. Make sure that a termination fee is not mentioned. Indeed, the change of borrower insurance is free;
- Send a letter of termination of your loan insurance by registered mail with acknowledgment of receipt to your current insurer. Note that this letter must be sent within a maximum of 15 days before the end of the 12-month period. If these deadlines are not respected, you will have to wait the following year to change mortgage insurance.
Change of borrower insurance on each anniversary date
Since the entry into force of the Bourquin Law (also called the Sapin II law) in 2017, it is also possible to change borrower insurance on each anniversary date of your mortgage. The procedure to be followed and the conditions to be observed are the same as for a change of insurer on the first anniversary.
Our tips for taking out stress-free borrower insurance
To carry out your real estate project with complete peace of mind, start your search for mortgage loan insurance as soon as possible. You can even take the necessary steps before finding the mortgage.
To change borrower insurance on the first anniversary or on the anniversary date, start your procedure 4 months before.
In all cases, use an online comparator to compare the offers in order to choose the one that best meets your needs.
Read also: Real estate credit: are the offers of online banks still so attractive?
