A loan often represents a large sum to be repaid. The mortgage, in particular, spans several years, and in this period an accident can happen. In the event of loss of income, disability or death of the borrower, how to repay the credit? This is where insurance comes in, which aims to protect the policyholder and his family, as well as the lending institution. It is strongly advised to subscribe to it when borrowing a large sum.
The usefulness of credit-linked insurance
Insurance is not a legal obligation, that is, the law does not oblige citizens to take out insurance with credit. However, banks and lending institutions may require it in the case of a mortgage. This type of loan, generally intended to finance a real estate project (acquisition or renovation of housing), often represents a substantial amount and is spread over ten years or more.
This is the reason why it is important to take out insurance, which will be used to pay off the credit in case you find yourself unable to do so. Of course, the bank can seize the mortgage to repay part of the credit, but this will seriously damage the borrower and his relatives. Thanks to insurance, it is possible to keep the property.
Concretely, insurance in addition to credit protects:
- The insured: reimbursement continues despite loss of income;
- Relatives of the insured (heirs, cohabiting spouse): they do not inherit the borrower’s debts;
- The lender, who is repaid despite the inability of the borrower to discharge his debts.
Note that insurance in the context of a mortgage loan can give rise to tax deductions, subject to certain conditions:
- Insurance is taken out before age 60 for women and age 65 for men;
- The insured borrowers and recipients are restricted to relatives up to 2nd degree or spouse who lived with the insured;
- The duration of the credit must be equal to or greater than 10 years;
- The insured amount is equal to or greater than the capital borrowed.
Types of insurance for a mortgage
There are two main insurances, which cover reimbursement according to the risks encountered.
Balance outstanding insurance
It ensures the repayment of the unpaid remains of the loan in the event of the death of the borrower. In this way, his heirs will not inherit his debts, and the lending institution is sure to receive his due. This insurance can be purchased from the bank that provided the loan or an insurer recommended by the establishment, this gives you the opportunity to negotiate a better loan rate. It is also possible to take out outstanding balance insurance with a third-party company, through competition.
Loss of income insurance
It reimburses the loan during a period of loss of income (eg involuntary job loss, illness or disability). The insurer will pay your monthly payments until you are able to do so again, according to the terms of the contract. You can subscribe to this type of insurance with a third company, or with the public authorities.
In the Walloon region, you can benefit from a credit repayment for a maximum of 3 years, up to $ 6,200 per year under conditions. The insurance must be taken out within 6 months of obtaining the credit, and covers job losses that occur in the first 8 years of the credit.
Taking out credit insurance
To take out insurance in addition to a loan, the following conditions must be met:
- The duration of the insurance and that of the linked loan are the same (for a 12-year mortgage, short-term insurance for 12 years);
- Establish a minimum amount to be insured;
- Perform a health exam to determine the risks.
It is possible to pay a single premium for insurance, or to opt for an annual premium. The amount of the premium is calculated according to the age and state of health of the borrower, as well as the amount, duration and interest rate of the loan.