Life and health insurance for mortgage - another type of insurance that you may be offered with a mortgage. Many borrowers rightly ask: Is life insurance required for a mortgage? and is it legal for banks to impose it at all?
The answer to this is already spelled out in the law - when purchasing a home on credit, ONLY insurance of the collateral (i.e. apartment, house, townhouse, room, etc.) is mandatory. Life and health insurance is voluntary.
However, almost all mortgage programs provide for an increase in the mortgage interest rate if you cancel life insurance. Here you already need to consider how it is more profitable to take out a mortgage. It often turns out that a mortgage with insurance is more economical than a loan at a higher interest rate. Do not forget that refusal of insurance may result in bank refusal without explanation.
Why do you need life insurance when taking out a mortgage?
Many financial institutions oblige their clients to undergo an insurance procedure because in this case of insurance the company will be able to fully repay all existing debt to the bank.
The insurer assumes all functions of repaying the loan in the event that the insured person is unable to fulfill his immediate obligations due to health problems.
If the borrower dies, the insurance company returns the mortgage debt in the amount of 100%. If the insured person becomes disabled or partially loses his ability to work, then compensation is made in the amount of 50-57%. And if the borrower is temporarily unable to work, he will demand compensation from the insurance company in the amount of a one-time mortgage payment.
FAQ
Below we have collected the most frequently asked questions on the topic of compulsory insurance.
Is it necessary to have life and health insurance for a mortgage?
No, this type of policy is voluntary. However, in the absence of insurance, the bank can raise the interest rate by 1-2 points and it will turn out that it is more profitable to buy insurance than to overpay on interest.
Is it necessary to insure the collateral for a mortgage?
Yes, insurance of collateral (structure) is required by law. Without it, the loan will not be issued. If you refuse to renew the policy, the bank may terminate the contract and require you to repay the loan early.
Is it necessary to renew insurance for the next year?
As a rule, policies (mandatory and voluntary) are valid for a year. Renewal of collateral insurance is mandatory, and renewal of life protection policy is necessary to keep the terms of your mortgage the same. The loan agreement may stipulate that in the absence of insurance, the mortgage interest rate increases.
The bank imposes insurance, what should I do?
The bank has no right to impose a specific insurance program (even mandatory) or company. The borrower has the right to choose where and under what conditions he wants to insure. The main thing is that the insurance company is accredited by the bank. As a rule, all major insurers (Alfa, Ingosstrakh, Rosgosstrakh, and so on) are accredited by all banks. You can check this through your mortgage manager.
What are the benefits for the bank and the client?
The benefit of insuring the client for the bank is obvious - in the event of the latter becoming unable to work, the remaining part of the debt will be returned to the financial institution in full.
Being confident that the mortgage will be fully repaid in any case, banks are ready to offer their clients the most favorable terms of cooperation - providing them with a higher amount at minimal interest. In addition, in the event of a serious injury, the borrower will not have to worry about having to repay the mortgage loan.
Advantages and disadvantages
Many borrowers have a negative attitude towards taking out personal insurance, considering it an unnecessary waste of money. However, in practice, life insurance can be useful not only for the bank and insurance company, but also for the client himself. Here are the advantages of this operation:
- you receive protection from many life unforeseen situations, as a result of which you will not have to fulfill your loan obligations;
- the risk of losing housing purchased on credit is significantly reduced;
- You can independently choose the conditions and insurance cases under the contract.
Life insurance also has some disadvantages. The main thing is the need to incur additional costs. Another unpleasant point is that for risks not included in the contract, you should not expect help from the insurer.
Read: Home insurance for a mortgage at Sberbank in 2021
Is this insurance required or not?
Much depends on which financial company the borrower cooperates with. Some banks require all their clients to undergo insurance procedures. Other organizations are more loyal in this matter and allow clients to be insured only at their own request.
Is it possible to get a mortgage without life insurance for the borrower?
Banks do not have the legal right to oblige all their clients to undergo insurance procedures.
The decision to cooperate with an insurance company must be made by the borrower independently and pressure on him from representatives of the banking organization is unacceptable.
However, in practice things are somewhat more complicated. A client’s refusal to provide insurance may result in banks simply refusing to provide the required amount of money. Such a decision on their part may be motivated by the fact that the lack of an insurance policy increases the risk of non-repayment of the loan debt in full.
Another possible scenario is that banks do not refuse to provide a mortgage to their client, but provide a loan at higher interest rates. They explain such actions in a similar way - increasing risks during cooperation.
How to cancel insurance?
The client can cancel insurance not only before concluding a cooperation agreement with the bank, but also after signing all the necessary papers. Some financial institutions quite often practice a situation in which they themselves inform borrowers about the possibility of terminating the insurance policy agreement. However, the bank client must regularly fulfill his payment obligations for at least six months.
Provided that the bank does not provide such an opportunity, you can officially formalize the refusal directly at the financial institution or demand the return of insurance payments in court.
Registration of refusal at the bank
In this case, the borrower must contact the credit department of the financial company with which he entered into a mortgage agreement.
The reason for refusing to use insurance services is a written application drawn up according to the proposed sample.
Based on this request, appropriate recalculations will be carried out and the client will be informed of the new cost of the loan product. You should be prepared for the fact that after the insurance policy expires, additional interest may be charged on the remaining balance of the mortgage loan.
Appeal to the courts
This situation may arise provided that the bank does not make concessions and refuses to terminate the insurance contract.
For this purpose, the borrower must prepare a package of documents, which includes loan and insurance agreements, as well as the bank’s refusal to terminate cooperation. Such refusal must be provided in writing.
Provided that the policy was signed without the consent of the borrower, then this point should be noted in the application. Proof of this fact may cause serious problems for a legal entity acting as a creditor.
Decor
Insurance of mortgage lending participants is carried out according to several schemes. The most common options are:
- Conclusion of a tripartite agreement. The parties to such an agreement are the insurance company, the borrower and the bank.
- Conclusion of an insurance contract after registration of a mortgage. In this case, the insurance contract is bilateral in nature. Its signatories are the insurance company and the borrower.
As for the nuances, here, just like when receiving a mortgage loan, a schedule of insurance payments is formed. Typically, the borrower agrees to pay a certain amount annually. Its size is determined based on the amount of the debt balance on the long-term loan. Options for making insurance payments quarterly and even monthly are also practiced.
What documents are needed?
To issue a health and life insurance contract for a mortgage, the borrower must provide the employee of the company providing this service with the following documents:
- Russian civil passport;
- questionnaire;
- application - its form is established by the insurance company;
- loan agreement;
- a copy of the work book;
- a certificate from a medical institution confirming your state of health (provided upon request of the insurer).
Cost and average interest rate
The pricing level for a mortgage loan with insurance is determined by taking into account many factors. The most significant of them are presented below:
- borrower's age;
- gender of the borrower;
- Lifestyle;
- profession.
The older the borrower, the more expensive the insurance company's services will cost him. The gender of the policyholder can also have a direct impact on the final cost of the mortgage loan. This is due to dry statistics - women live longer than men.
Hazardous production factors lead to the fact that the final cost of insurance will tend to increase. Moreover, if the borrower is actively involved in sports and leads a healthy lifestyle, then he can safely expect a significant reduction in the cost of insurance services.
If we talk about specific figures, the amount of mortgage insurance in most cases ranges from 0.3 to 1.5% of the total mortgage loan.
It should be noted that any actions performed by the borrower (making regular payments, early closure of a loan account, delays) have a direct impact on the formation of the amount of insurance. When the next so-called liability period occurs, the total amount of debt is recalculated.
As the total debt decreases, the amount of insurance premiums also decreases, which are paid once a year. As mortgage payments are made, the amount of annual insurance premiums will have a steady downward trend.
How to save on mortgage insurance?
First of all, you need to keep an eye on promotions and special offers. Companies often attract new customers with reduced rates. But renewing the policy for the second and subsequent years may be beneficial.
How else to save on insurance:
- purchase an apartment in a new building;
- when taking out a mortgage for a spouse, the insurance rate may be 10-40% lower;
- carefully fill out the form (for smokers and extreme sports enthusiasts the policy is more expensive);
- compare tariffs in all available companies and calculate possible payments;
- insure for 5 years immediately.
How to calculate?
You can make the corresponding calculations in two different ways - yourself or using a special calculator. This is the name of a very convenient online tool that allows you to get the necessary answer in the shortest possible time.
Using such a calculator is not difficult. The user just needs to enter all the necessary data in a special form. Based on the information provided, after pressing the button, all necessary calculations will be carried out automatically.
What is more profitable: taking out personal insurance or refusing it?
Personal insurance is not required when taking out a mortgage. However, banks facilitate its purchase. There are different methods of influence:
- refusal to issue a mortgage;
- interest rate increase.
And if the bank does not directly motivate its refusal by the lack of insurance, then it openly increases the interest rate - on average by 1% per annum. For example, such a condition is valid in Sberbank and Rosselkhozbank.
It is sometimes difficult for an ordinary person to assess the profitability of a particular solution. To do this, keep in mind that:
- if you refuse insurance, the interest rate on the mortgage increases, which means the amount of overpayment increases;
- When you take out insurance, the amount of overpayment will be less, but you will need to spend money annually on the insurance itself.
It is also necessary to take into account the fact that personal insurance gives its owner some protection, while refusal of it will require the fulfillment of obligations to the bank even in emergency cases.
Calculate the cost of a mortgage with and without insurance. Then, to the amount of overpayment with insurance, add its cost for the entire loan term. If this amount turns out to be less than the overpayment without insurance, then it is still more profitable to issue an insurance contract. Otherwise, you can do without it if financial gain is a key factor.
Example . Korikova bought an apartment with a 15-year mortgage. She borrowed 1.5 million rubles from the bank. at 10.3% per annum. The cost of annual personal insurance is 2,000 rubles. Is such a decision beneficial if, in the event of cancellation of the insurance contract, the interest rate would increase to 11.3% per annum. The overpayment without insurance would be RUB 1,619,940. With insurance, the overpayment is equal to RUB 1,451,280. and another 360,000 rubles. would be spent on the insurance itself (but you need to take into account that the cost of insurance will decrease in proportion to the debt to the bank). It turns out that a mortgage without insurance in this case would be more profitable from a financial point of view.
Read: How to pay off your mortgage early: it’s more profitable to reduce the term or payment
Online insurance calculator
On our website you can use an online calculator. To do this you need to enter the following data:
- the city in which the mortgage is issued;
- Name of the bank;
- object of insurance;
- risks;
- personal data of the borrower.
Important point! After all fields are filled in, click “Calculate”. After a few seconds, the service will display the cost of the certificate. If you wish, you can pay for the policy online and receive it by mail. Next, you need to print it out, sign it yourself and take it to the bank. Typically, such a policy is 10% cheaper than a similar one issued at a bank or insurance office.
What happens if you don't buy a policy?
Speaking about whether mortgage insurance is mandatory or not, it should be noted that the certificate is an additional security measure for the bank. If the client cannot pay the debt, the insurance company will do this.
A mortgage agreement that is not secured by insurance is at risk for the lender. The alternative is to raise the interest rate. That is, if the borrower does not take out a policy, he will pay more on the loan.
On average, the loan rate increases by 1-3 percentage points.
Is it possible to get my insurance money back in 2021?
This is a question of particular concern to millions of borrowers. If the loan is repaid early, when the risk of death and loss of health disappears, by any logic and fairness it is obvious that part of the insurance paid should be returned to the client.
In case of partial early repayment, as a rule, insurers do not recalculate insurance unless this is expressly stated in the contract. In case of full repayment, he can return part of the insurance only when the contract does not prohibit this action. Usually, insurance companies directly state in the documents that insurance refunds are not possible.
As a rule, in such a situation, the borrower goes to court. And here the judicial practice on this issue is completely ambiguous. There are cases in which the court refuses to return the insurance to the plaintiff, citing his signature in the insurance contract. In other cases, judges grant the borrower's claims and they receive back the amount of insurance they paid.
The insurer is obliged to return the full amount of insurance to the client in two cases: upon termination of the insurance contract within 5 days from the date of its execution; when paying off a mortgage before the first payment is made.
Life and health insurance when obtaining a mortgage is not a mandatory requirement for approval of the application and issuance of the loan. This is the borrower's right, not his responsibility. However, in most cases, unless of course the client intends to repay the mortgage ahead of schedule, it is a forced and necessary measure.
Insurance acts as a guarantee of protection not only for banks, but also for borrowers who, in the event of disability or death, will be able to retain the purchased housing. The client has the right to independently select an insurance company, the terms of cooperation with which will suit him to a greater extent.
Where to apply?
According to the law, the borrower has the right not only to refuse personal insurance, but also to choose an insurance company if it is issued.
However, you cannot apply to any organization. Each bank has its own list of accredited insurance companies, and you need to choose from it. For example, Sberbank now has 18 of them, including Sberbank Insurance, VSK, Ingosstrakh, SOGAZ. To understand where it is cheapest to get life insurance, it is recommended to first decide on a bank, familiarize yourself with the list of accredited companies, and then choose from them. You can contact each of them to calculate the cost and then choose the more attractive one.
There is no insurance company that offers the best rates to all customers. Each organization uses its own risk assessment methodology and tariff schedule.
In practice, it turns out that the lowest rates are most often offered by insurance companies and Renaissance Credit, but Sberbank Insurance has a higher cost of life and health insurance policies.
