When you want to take out a home loan, lending organizations mostly ask their customers to take out home loan insurance. The latter makes it possible to protect customers and lending organizations in the event of non-repayment of the loan. So how does mortgage loan insurance work? Is it mandatory to have one? How to choose this type of insurance? Answers!
What is home loan insurance?
I’home loan insurance is an insurance that is offered to a borrower when he applies for a mortgage. It guarantees the assumption of all or part of the repayment deadlines or the outstanding capital of a loan in the event of the borrower’s inability to repay his monthly payments in the context of certain events.
Indeed, the insurance will not be systematically requested to repay the loan if the borrower is no longer able to pay his monthly payments, but only in the event of death, total or irreversible loss of autonomy, permanent invalidity, temporary incapacity for work and loss of employment. It is only in these very specific cases that the insurance will be able to take charge of the partial or total reimbursement of the mortgage.
Home loan insurance is generally offered by the lender when the customer applies for a loan. The latter can accept the offer made to him, but also turn to another insurance as long as it meets the requirements of the lender.
Is it mandatory to have borrower insurance?
It is not compulsory for a borrower to take out insurance when making a mortgage. In any case, no legal provision requires it. In fact, it’s a little different, because a bank can make the subscription to borrower insurance a condition of access to its offers. In other words, the conditions for accessing a loan will be to take out borrower insurance.
To protect themselves, the vast majority of lending organizations almost systematically require the borrower to take out insurance. The guarantees desired by the bank will vary depending on the type of loan. For a rental investment, insuring against the risk of death and total and irreversible loss of autonomy will be sufficient. For the purchase of a principal residence, the borrower insurance chosen must most often insure the client against the risk of death, total and irreversible loss of autonomy, invalidity and incapacity for work and sometimes loss employment.
If the chosen insurance meets the expectations of the lending institution and the other conditions are also met, the borrower can then obtain his mortgage.
How to choose this type of insurance contract?
If the subscription to a mortgage insurance is a condition of access to the latter in most banks, nothing obliges a customer to opt for the insurance offer made by the lender. Indeed, the latter have offers that will be matched with the proposed mortgage and these offers can be quite interesting. That said, a customer has the option of turning to another insurance organization to choose his mortgage credit insurance.
A health status declaration questionnaire must then be completed by the client in order to obtain various information. Depending on the answers of the latter, the type of insurance, but also its pricing will vary from one person to another. The customer will have the opportunity to compare several offers in order to choose the one that suits him best. Once the subscription has been made, he can then obtain his mortgage and make his project a reality. The insurance will only be used if one of the scenarios covered by the latter arises.