Insurance of the real estate loan
Making a rental investment is a delicate investment, it requires a significant amount of money. In order to obtain enough capital to realize a rental real estate project, most landlords use a real estate loan. However, when it comes to real estate loans, it is important to have guarantees. Whether you are a lender or a borrower, taking out home loan insurance is an essential step. Let's take a look at this security.
What is home loan insurance?
When applying for financial assistance from a bank to invest in real estate, the bank requires many guarantees. Indeed, it must ensure that borrowers are able to guarantee the payment of monthly instalments. In addition to verifying the borrower's financial and professional stability, the bank requires real estate loan insurance.
Home loan insurance is a guarantee that covers all or part of the possible hazards of life: loss of employment, death, temporary incapacity to work, permanent disability, etc. To negotiate a mortgage, it is therefore important to take out mortgage or loan insurance. It generally covers the risks related to situations where monthly payments will not be reimbursed.
In general, a series of medical questions are involved in purchasing loan insurance. Banks use this form to assess the level of risk of non-repayment of the loan. It includes health status, age, medical history... It is also possible that the insurer or the bank may require additional medical examinations in the event of a dispute. After answering all the questions, the borrower is in a position to know whether or not his real estate loan is granted.
The guarantees of the real estate loan insurance :
Although the borrower is in good health and shape, he or she is not immune to unpredictable events. Borrower's insurance covers various risks. Let's find out what all these guarantees are for and what the various levels of coverage are.
The death benefit :
Death is a natural phenomenon that cannot be anticipated. To avoid inability to repay in the event of death, the bank requires death insurance. This guarantee offers heirs and co-borrowers the possibility to avoid having to bear the payment of the mortgage. When subscribing to a mortgage insurance contract, the borrower pays a monthly contribution to the insurer. This contribution will generally be calculated according to the amount of the loan. This percentage allows the insurance company to pay the amount due to the bank when the borrower dies. However, the insurer will not cover the repayment if the cause of death of the borrower is suicide or an illness not reported on the form.
Disability coverage :
Disability insurance covers 3 major eventualities: permanent total disability (PTI), permanent partial disability (PPI) and temporary inability to work (TTI). They differ from each other by a rate established by a doctor chosen by the insurer. Indeed, following an accident (at work or during daily activities), the borrower may no longer be able to practice his profession. A doctor will then come to assess the debtor's disability rate. The medical professional will determine the rate of disability based on the medical examination scale.
A disability is classified under TPI when the rate is greater than 66%. Blindness, for example, is classified as TBI and has a rate of 85%. PPI, on the other hand, has a disability rate around 33%. A borrower is in TTI when he or she is unable to work for a limited period of time. The insurer will compensate his mortgage until he is able to resume his activity.
The guarantee of total and irreversible loss of autonomy:
The total and irreversible loss of independence benefit is a form of disability considered serious. It applies to a borrower who is no longer able to perform the tasks of daily living (dressing, eating, showering, etc.) independently. To carry out these tasks, he or she requires the assistance of a third person. Thus, he is no longer able to work and earn a living. The Total and Irreversible Loss of Autonomy Insurance or PTIA covers the total reimbursement of the remaining unpaid capital.
In order not to be subject to guarantee cancellations, great attention must be paid to the conditions of the insurers when signing the insurance contract. In general, chronic illnesses, high-risk professions and sports are subject to special clauses.... However, this type of guarantee costs a little more than the PTIA insurance of a borrower who is not exposed to the risk of accidents on a daily basis. The ideal is to take the time to read and check all the terms and conditions of the contract advanced by the insurer.
The unemployment guarantee:
During the repayment period of a property loan, it is likely that the borrower may be faced with a situation of cessation of activity. The job loss guarantee covers the payment of monthly installments during unemployment. The insurance company takes care of all or part of the payment of the capital remaining due following the loss of income of the borrower. This insurance is mainly intended for salaried borrowers with a permanent employment contract. It is sometimes subject to a seniority requirement.
The clauses of the loss of employment insurance contract may contain several exclusions. It is therefore important to carefully check the conditions put forward by the insurer. However, before going to an insurance company, you should know that the liberal professions, employees on fixed-term contracts, shopkeepers and self-employed workers are not eligible for this cover. Employees in probationary period, resigning employees, those dismissed for professional misconduct or on notice of dismissal are also excluded from this insurance.
The non-objective sickness coverage:
Non-objective disease or NRM refers to disorders that physicians are unable to characterize. They are represented as NRMs because their symptoms vary from person to person. With NRM, suffering cannot be measured objectively and the harm caused cannot be precisely defined. Psychosomatic illnesses, burnout, and mental disorders such as depression and chronic fatigue are included in NRMs.
Non-objective health insurance is a kind of protection that provides coverage if the borrower has an NRM. It can lead to a work stoppage for a certain period of time, resulting in loss of income and difficulties in making monthly payments. To be eligible for this insurance, it is important to provide certain records (CT scan, X-ray, etc.) to the insurance company.
The cost of home loan insurance?
The cost of the insurance is calculated according to the borrower's age, gender, general state of health, the risks associated with the practice of sport or work and the amount of the loan covered. For example, it can be difficult to find a borrower's insurance that agrees to cover a soldier regularly deployed in a war zone.
The bank will offer its insurance contract called "group contract" which is generally expensive compared to market prices.
There are 3 laws that allow you to be insured elsewhere than at the lending bank:
- Loi LAGARDE (passed in 2011): It opens the loan insurance market to external insurers in 2011. Prior to this date it was not possible to be insured outside the bank. It allows to carry out a "delegation of insurance" exactly at the time of the signature of the credit, but not to change it afterwards.
- HAMON Law (passed in 2014) : It allows borrowers to change their mortgage loan insurance within the first 12 months of signing the loan, with 15 days' notice.
- BOURQUIN amendment (passed in 2018): It allows borrowers to change their home loan insurance every year after the first year, on each anniversary date of signing the loan. It is then necessary to provide a 2-month notice.
In all cases of change of insurance, the law imposes to keep at least the same guarantees as those covering the insured. Under no circumstances can the insured person be less covered after his change of insurance. On the other hand, he can ask to increase his coverage (but there are very few requests to do so).
Changing your loan insurance at www.compareil.fr is quick and completely online, with a telephone help line for underwriting assistance and advice. The best prices on the market are compared to provide the insured with the cheapest policy that suits their situation.
On average their customers save between 30% and 50% on the price of their current insurance. This result can vary up to 70% for the most extreme cases, with very expensive group insurance taken out a few years ago.
The savings made are therefore significant and significant, and allow them to reduce their monthly payments in order to free up budget for other expenses.
Is home loan insurance mandatory?
In general, there is no law requiring the debtor to take out home loan insurance. Protection against the risk of non-repayment is mainly imposed by financial institutions granting credit for a real estate project. Indeed, in France, it is difficult to find a bank or credit institution that grants a loan without a minimum guarantee. This insurance is essentially required to finance an investment such as arental investment requiring a large sum to be repaid over several years.
There are institutions that do not ask for mortgage loan insurance, but instead require a pledge of assets equivalent to the loan. However, the borrower sometimes has to repay up to twice the amount borrowed. This approach is, moreover, reserved for borrowers who already have assets to pledge. For an investment in stone, mortgage loan insurance therefore proves to be a cheaper and more secure solution to guarantee the payment of a loan.
Home loan insurance is made up of many guarantees, some insurance is mandatory. The death insurance is the main guarantee of this protection against the non-repayment of loans. The conditions vary according to the insurer's requirements and the borrower's real estate project. For a rental investment or a second home, the mandatory guarantees are limited. In case of default, the borrower can pay the monthly installments of the real estate credit by the rents. To finance an investment in a principal residence, the lending institution requires greater guarantees.
Is it possible to insure a home loan outside the bank?
When you apply for a home loan, the bank offers its own insurance. The borrower can choose the insurance suggested by the financial institution or adopt the guarantees presented by another insurance institution. Since 2015, banks are required to provide each borrower with a standardised form detailing the basic features of the proposed mortgage insurance. If the borrower finds the offers made by the bank too expensive, he has the option of delegating the insurance. However, it is necessary to opt for an insurance contract that provides similar guarantees to those offered by the bank, but often at a more attractive price.
The choice of insurance
The bank may offer you a particular insurance company, but you are not required to take out insurance with your bank's insurance company. On the other hand, your bank may refuse your loan if you do not take out the insurance offered by your bank.
Guaranteeing yourself against the various hazards of life can be necessary to protect yourself against loss of income. As an investor in rental property, property income must be declared to the tax authorities, the various insurance premiums relating to the property loan will be deductible in the same way as the interest on it.
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