Does the bank have the right to oblige you to contract life insurance with its affiliated insurance company when you take out a mortgage?
The reason for writing this blog post was a call from one of our clients, who shared the good news: the bank has approved his mortgage on very “attractive” conditions. Indeed, the interest rate is quite low, but the bank offered to take out life insurance through its insurance company with one-off payment of five-digit amount.
We often issue life insurance for the clients who have a mortgage and want to take out a policy to protect their loved ones from eventual debt problems in case of unfavourable development of the situation. Our experience allowed us to make a clear conclusion – the conditions of insurance offered by the bank in this case are disadvantageous. And many clients who buy real estate in Spain are facing quite similar situation.
So, what are the most important things you need to know when negotiating mortgage life insurance with the bank:
First of all, according to the new mortgage law, which came into effect in 2019, when issuing a mortgage, the bank has no right to oblige the client to take out mortgage-related insurance policies with the bank’s affiliated insurance companies. The client has the right to choose an insurance company that offers the terms and conditions which suit the best his preferences and budget.
In some cases, the bank offers a lower mortgage interest rate subject to issuance of life insurance with its affiliated insurance company. In this case, it makes sense to calculate if the difference in the interest rate you get outweighs the potential economy you can get if you take out insurance with another company. In some cases, it is more advantageous to accept an average market mortgage interest rate (without discount) and take out a much cheaper policy with an insurance company of your choice.
The form of payment for a life insurance policy may vary. Banks often offer a one-off payment for the entire duration of the mortgage, which is charged when you take out the policy. Furthermore, this insurance premium is often included in the amount of financing provided, i.e. you annually pay to the bank the interests on the loan you get to finance your one-off life insurance fee. You can choose an annual form of payment instead with annual policy prolongation. In this case, if one year you are not comfortable with the terms of the policy, you can change the insurance company by notifying the insurer that you do not want to renew it at least one month before the date of its annual automatic renewal.
Insurance coverage vary. Often, insurance policies offered by the banks are far from being the best value for money, and you can find a policy with a significantly better price/ covered risks ratio in the market. The life insurance contract clearly specifies the list of insured events and exclusions. Top insurers offer policies that provide for compensation in case of death for any reason, except for the risks deliberately excluded by the terms and conditions of the insurance company. Moreover, the contract may provide for payments in the event of absolute and total disability. Some companies include extra services, i.e. related to legal support in inheritance related issues.
When taking out life insurance, you need to consider thoroughly all term, conditions and circumstances in order to get a quality policy on the terms that suits you. The analysis of a case presented by the client who has applied us allowed to offer him a solution which costed 50% less than the one offered by the bank. In absolute terms, the amount of saving turned out to be important.
If you have any doubts about the taking out insurance when you get a mortgage, we are always happy to advise you free of charge and offer the most advantageous options available in the market. We do not charge any additional fees for the policy selection or issuance. By spending just a few minutes on a phone call or sending us an e-mail you can save a substantial amount of money. Call us: 677455883, e-mail: info@justinsurance.es.
