People who decide on a long-term loan to purchase a home will certainly ask the question: is it necessary to have life insurance on a mortgage. Banks insist that this point is necessary and they scare that in case of refusal, the rate will increase by several percentage points.
What is insurance
The Federal Law "On Mortgages" states that the only obligatory contract that must be concluded in order to obtain a loan is real estate insurance. But credit organizations, trying to protect themselves as much as possible, offer comprehensive insurance. This includes life insurance and property rights.
As a rule, banks motivate borrowers to conclude a life insurance contract by offering to reduce the rate by 1-2%. Or initially they offer to take a mortgage loan at a certain percentage, and then they warn that without this insurance it will be higher.
The life insurance contract is concluded for a period of 1 year, after which it can be terminated or prolonged. In the first case, a certain percentage is automatically added to the interest rate, while with the extension, everything remains unchanged.
Risks covered by life insurance
- Partial or temporary disability for more than 30 days (health disorder, injury, illness)
- complete incapacity for work or disability (groups 1 and 2)
- death of an individual to whom a mortgage is issued
Having insured his life, the borrower gets the opportunity to protect himself from the listed risks and claim insurance compensation, which can be used to pay off the debt in full or in part, by transferring funds to the bank, or pay for the treatment of the insured person. It also reduces the risks of a credit institution from non-payment of debt.
Circumstances under which payment will be refused
- suicide
- alcoholic, narcotic, toxic intoxication
- if the insured event occurred when a person commits an unlawful act or crime, proven by a court
- incurable diseases
- knowingly providing false information
If the insured event has occurred, and the insurer has admitted that the insured person does not pass any of the above points, then he is obliged to pay off the debt to the credit institution in full or in fact (temporary disability).
Is insurance compulsory
The borrower has the opportunity to obtain a mortgage from credit institutions under the state co-financing program, in other words, from those who are subject to state support for this type of loan. One of the mandatory requirements is the conclusion of a life and health insurance contract. On legal terms, you can refuse it after a year, for which the bank immediately raises the interest rate. And then the overpayment can be much more than the cost of the insurance policy.
Credit institutions, as a rule, offer the services of their subsidiaries engaged in this type of activity, where the price is significantly higher than the market average. If you carefully study the insurance companies accredited by the bank, you can find better deals. This will help avoid unnecessary overpayment and maintain the original loan rate.
If you take a loan without co-financing, then it is not necessary to purchase a life and health insurance policy. Then the rule begins to operate, as for borrowers with state support, in case of refusal from the insurance contract: the bank's interest rate rises by several percentage points.
But not all banks necessarily require the conclusion of an insurance contract. For example, Gazprombank, Globex. But Sberbank, VTB, Rosselkhozbank, Raiffeisenbank, Deltacredit begin to apply sanctions in case of refusal of insurance. The increase in their interest rate varies from 0.5 to 3.5%.
If the borrower repays the mortgage loan ahead of schedule, having fully settled with the bank, he has the right to apply to the insurance company with an application for the return of part of the insured amount.
