Life insurance for mortgage protection
22 February, 2023 | Alba Tebar
It is common for the bank to ask you to take out one or more policies associated with your future mortgage loan. In that scenario, one of the most known policies people opt for is life insurance, as it is a big concern for everyone.
Conventional life insurance is a payment that you make in order to give your heirs a payment if you die. However, this article has not the purpose to talk about this type of life insurance, as mostly everyone knows how it works. So, in this article, the main purpose is to talk about how a life insurance works when it is linked to a mortgage. Because, as far as we are concerned, its performance is quite different from how we are used to in a conventional way.
The main services life insurance for mortgage offers are:
- Coverage in case of death of the mortgage holder. If that happens, the insurance will pay the insured amount to the bank. It will be used to pay off a part or the total amount of the debt, depending on the insurance policy you’ve contracted.
- Coverage in case of permanent disability. If you become unable to continue working due to an accident or illness, the insurer will also have to pay the bank the amount of money that is insured.
In general, life insurances cover the 100% of the mortgage bills. In a word, it will be the insurance the one that will pay all your loan in case of death or permanent disability. Nevertheless, there are some insurances that may only take care of the 50% or 70% of your debt. In that sense, from Hipotecasplus we recommend you to choose fully consciously. The clue is to carefully compare the pros and cons of each life insure until you fins your perfect one.
Same applies when finding the bank that better suits for you, or even mortgage. In all those cases, remember that you can always count with the experience form our experts in Hipotecasplus. Thanks to us, you will be able to find the best mortgage and the best bank depending on your personal needs and particularities.
By all means, our long experience within this sector will guarantee you the success and security that you may need. So, don’t think about it any more and get in contact with us now! No commitment will be required! Remember, at Hipotecasplus, we would be delighted to help you with everything you may need!
Are life insurances mandatory in your mortgage?
This is probably one of the most common questions regarding this topic. But the answer is not black or white: it depends. Let us properly explain that to you.
The law does not make it mandatory to contract a life insurance as the only way of obtaining a mortgage. In that sense, you could obtain a good mortgage with a bank with no life insurance linked to that. However, this is quite unusual, because of the way banks sell this product.
In fact, among other provision, the law 5/2019, which regulates real estate credit contracts, ended with the practice of tied sales, which are now prohibited, and regulates exceptions.
On the other side, the law allows the bank to sell you this type of policy as a linked product -with you have no other option but to buy- or as a combined or bonus product -which is optional-.
- Life insurance as a linked product to the mortgage. In that case, you must engage on that in order to obtain your mortgage, because one does not exist without the other, and the other way round.
- Life insurance as a combined product. In that case, you could experience a more “freedom”. The thing is that combined products are not mandatory things, so you could freely choose to link it with your mortgage or not. Anyways, hiring them both together is usually a good thing for you as a consumer, because you may be able to experience a huge drop in the interests you have to pay as a mortgage.
What you should be aware of in this topic is that most banks will not force you to take out life insurance along with the mortgage. What is much more common to do is to offer you lower interests in your mortgage if you sign one of their combined products -so to say, one of those policies such as the life insurance one- with them.
Arrived at that point, it is usual to ask oneself if you really need this life insurance for mortgage protection. Well, it depends on your personal needs. In Hipotecasplus we tend to think it is mostly useful to have it, because it is like a “life jacket” for you and your family in extreme situations. Nevertheless, a further particular study of each costumer should be needed before making a decision.
How much a life insurance is worth?
To have a life insurance associated with your mortgage, as you may have guessed, it is a privilege. And every privilege has its price. The price, however, is not always the same. It can vary according to different factors of the holder. For example:
- You will need to pay more if you are old
- You will have to pay a higher life insurance if you have a dangerous job
- You will pay more proportionally to your mortgage loan. Higher the mortgage, higher the price you’ll need to pay for your life insurance.
Anyways, to give you an approximate idea, you should know that an average person could pay between 200 and 400 euros per year for their life insurance. As a general fact, all of those life insurance payments are annual, so you will have to renew them every each 12 months.
You can obtain more information on the website of the Bank of Spain