Do You Have to Have Mortgage Insurance?
Home loan insurance is a guarantee required for any home loan. Its cost is significant since it can represent up to 1/3 of the amount of your loan. In recent years, various laws have been passed allowing the borrower to make significant savings on mortgage loan insurance. How to choose your loan insurance? What are your rights and obligations regarding mortgage credit insurance? How to pay less for your borrower insurance? Our experts answer you!
Summary
- Our tools
- Our advice
- What is home loan insurance?
- How is the insurance rate for a home loan calculated?
- What are the guarantees of mortgage loan insurance?
- Comparison of borrower insurance for your mortgage: how to choose?
- What is the best insurance for your mortgage?
- Lemoine law: changing the insurance of your mortgage becomes easier!
- What are the steps to apply for mortgage loan insurance?
- How to find real estate borrower insurance with a medical risk?
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| What is Mortgage Insurance and How Does it Work? |
What is home loan insurance?
Borrower insurance is coverage that protects you in the event of a claim preventing you from honoring the repayment of your monthly mortgage payments. Home loan insurance is not made compulsory by law, however, it is required by banks to grant you credit. It is a pledge of security for the lending establishment which grants you the loan. In the event of work stoppage, disability, death, or any other incident compromising the repayment of your home loan, the loan insurance will cover the repayment of the monthly payments due.
There are two “types” of mortgage credit insurance: the group contract and the external contract, called insurance delegation. When you choose your coverage, you can:
Either subscribe to the contract offered by your lending institution (the “group” contract); or take out an external insurance policy on your side, which you will present to the bank (the "individual" contract).
When taking out your home loan, the lending institution will therefore offer you take out its loan insurance. But you are free to choose the contract of your bank or to turn to the insurer of your choice. The first solution is generally simpler since you will not have to do additional research. However, be aware that an external mortgage loan insurance contract is much more personalized, and very often cheaper (the premium can be up to 50% lower)!
How is the insurance rate for a home loan calculated?
The rate of home loan insurance depends mainly on 3 elements:
- the age of the borrower;
- medical risk;
- the amount of the loan.
In addition to these three factors, other elements will also influence the cost of your borrower insurance:
your personal situation (married, single, etc.) and professional (CDD, CDI, etc.) at the time of the loan; whether or not you are a smoker;
professional risk: certain professions are at risk, especially if your job is precarious (Réassurez-moi offers credit insurance contracts adapted to risky professions); so-called high-risk leisure activities: some insurers may refuse to cover you if you practice, for example, a sport deemed dangerous or extreme, or will apply an additional premium; the choice of guarantees (death, disability, unemployment, etc.)
It is easy to observe very significant differences from one insurer to another, for the same file, because the assessment of the risk can really vary. There are nearly 70 different contracts in France.
Here is a comparison of borrower insurance with the rates offered by bank insurance and those offered by an insurance delegation. Insurance external to banks generally offers more competitive rates because the margins are much lower.
What are the guarantees of mortgage loan insurance?
Home loan insurance is coverage that protects the borrower in the event of death or a serious health problem (accident, illness, etc.). Depending on the guarantees taken out, you will be more or less covered and therefore compensated in the event of a problem. For rental purchases, only Death and PTIA guarantees are mandatory, for residential purchases, IPT and ITT guarantees must be added.
Credit insurance, therefore, protects you against a wide range of claims that could occur during the life of your bank loan: job loss, sick leave, death, disability... But what are these guarantees?
- The death insurance guarantee:
If the borrower dies, it is the insurer who will take care of the repayment of the loan to the lender;
The disability guarantee, available in several levels, is linked to the death guarantee:
The PTIA guarantee (Total and Irreversible Loss of Autonomy):
This is a physical or mental disability observed before the age of 65, preventing the insured from carrying out a professional activity and requiring the assistance of a third party in the acts of everyday life. It is similar, in terms of reimbursement, to death: the insurer will reimburse the capital remaining due in full (in the event of a loan alone).
- The IPT guarantee (Permanent and Total Disability):
Once the person's condition has been consolidated, the degree of disability must be more than 66% (depending on the contracts) to trigger the guarantee: this is called functional disability.
- The IPP guarantee (Permanent and Partial Disability):
The degree is lower than the IPT, generally from 33%.
In these 3 cases, the level of reimbursement of your loan by the insurer will depend on your degree of disability according to the conditions provided for in the contract.
- The ITT guarantee (Total Temporary Incapacity for Work):
If you are unable to work following, for example, an illness or an accident. The operation of the job loss guarantee (or unemployment guarantee), often offered as an option to a credit insurance contract, is relatively simple. Indeed, if you lose your job (dismissal), the insurer will replace you for the payment of your installments, after respecting a possible deductible period. The conditions for activating this guarantee also vary according to the contracts.
Comparison of borrower insurance for your mortgage: how to choose?
When signing your home loan, your bank will offer you to subscribe to its insurance contract. However, this so-called group insurance will have the disadvantage of not being personalized and above all, is often very expensive.
Since 2010, the legislation has made it possible to make the subscription of your loan insurance more flexible. Here are the 3 points to remember when choosing your borrower insurance:
- you are free to take out your contract with the insurer of your choice, as long as it offers the same conditions as the insurance offered by your lending bank ;
- in the event of a rental purchase, you will not be obliged to include the ITT (work stoppage) and IPT (disability) guarantees, although recommended;
- you can change your insurance free of charge, without conditions, at any time (Lemoine law).
Before subscribing to group credit insurance (offered by the lending bank) or individual (on your side), look at the general conditions of the contract. To compare home loan insurance, you must certainly look at the borrower insurance rate, but not only! Indeed, the cases of activation of the guarantees, or the deadlines for taking charge, vary from one insurance policy to another, in particular about:
- the waiting periods: that is to say the period during which you will pay your contributions normally, but without the guarantees still being active;
- deductible periods: starting on the day of occurrence of the claim (illness, accident, etc.), this is the period during which the guarantee concerned will not cover you. The assumption of responsibility will only take place after a certain period provided for in the contract (between 3 and 9 months in general);
- exclusions: that is to say the cases that prevent the activation of a guarantee. Some credit insurance contracts provide for a lot: in order not to be surprised in the event of a claim, check the extent of your coverage before any subscription;
- the type of reimbursement: it can be compensatory, that is to say in addition to what another entity could pay (Social Security, mutual health insurance, etc.) or lump sum (the reimbursement then covers the entire contribution).
We, therefore, advise you to use a borrower insurance comparator to obtain several quotes. To do this, you can call on Reassure Me, a mortgage loan insurance broker, and our free tool, which does not require any contact details, to start the comparison.
The delegation of loan insurance allows you to make significant savings. Bank contracts are on average 15% more expensive than conventional loan insurance (for an equal level of guarantee)!
What is the best insurance for your mortgage?
Here is our comparative table of the best borrower insurance. To find out your personalized rate, do not hesitate to use our home loan insurance comparator to make a simulation for free.
Lemoine law: Changing the insurance of your mortgage becomes easier!
For several years, various laws have come to relax the legislation related to mortgage loan insurance. It is now possible to change borrower insurance, free of charge, as soon as the offer is signed.
Since June 2022, thanks to the Lemoine law, it is, therefore, possible to change mortgage loan insurance at any time for individuals who have taken out a mortgage for residential or mixed-use (residential and professional). This law simplifies procedures and offers more flexibility to the borrower insurance market.
Thus, in addition to a possible change of borrower insurance during the first year of subscription, you can now request an infra-annual termination of your home loan insurance after the first anniversary date, at any time, throughout the term of the loan, without any deadline constraint and without charge.
Borrowers can therefore change contracts at any time and without requiring proof or being charged a fee.
When is it possible to change mortgage insurance?
In favor of the borrower, these devices are however not well known to consumers. Indeed, even before having obtained the loan agreement, the bank will encourage you to subscribe to its own borrower insurance. However, you have the possibility of refusing the mortgage insurance of the bank and comparing the offers of the market to find a price that will correspond more to your budget. This is called delegation of insurance. Entrusting the coverage of your loan to another insurer allows you to negotiate a more competitive premium and achieve significant savings.
At Reassure Me, we take care of the termination of your old loan insurance free of charge, until the subscription of your new contract. In less than 3 weeks, your change of insurance is effective!
What are the steps to apply for mortgage loan insurance?
- Simulate the cost of home loan insurance
Use our online and free borrower insurance simulator to find the best insurance for your home loan. All you have to do is fill in our comparator and you will get a mortgage loan insurance amount adapted to your profile.
- Make a comparison of borrower insurance
By using our comparison of the different borrower insurance offers, you will get the best home loan insurance rates. But be careful, the rate of your borrower insurance is not the only element to take into account! Also consult the level of guarantees, exclusions, but also deductibles applied which impact the level of coverage.
- Sign the best home loan insurance
If you have found inexpensive borrower insurance, and coverage suited to your needs, then you can subscribe directly online thanks to the free online mortgage loan insurance comparator.
- Cancel your old mortgage insurance
Once the offer has been signed, you have nothing more to do, our Reassure Me, experts, take care of all your administrative procedures! A significant time saving and a non-negligible simplicity in the termination of your borrower insurance.
How to find real estate borrower insurance with a medical risk?
A medical questionnaire will be imposed on you before any subscription to mortgage insurance, to estimate the "risk" that you represent for the insurer. Indeed, since this contract covers you in the event of an accident or illness, the insurer's doctor will want to know your profile.
Depending on your answers to this questionnaire, the insurer may consider that your file involves a higher risk than a conventional borrower. In this case, 3 choices are available to him:
- acceptance of your file with the application of an additional premium;
- an acceptance with exclusions of guarantees;
- a refusal to insure your mortgage.
In the event of a refusal of mortgage loan insurance, do not hesitate to turn to our borrower insurance experts, who will take care of accompanying you .
However, thanks to the Lemoine law, the medical questionnaire is no longer mandatory for borrowers with an outstanding loan of less than €200,000 (€400,000 for a couple), and whose loan maturity dates before their 60 years!
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