Mortgage life insurance - mandatory or not?

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Having taken out a mortgage on an apartment, the borrower must be aware that over the course of 15-20 years he will have to pay certain amounts to the bank. And the loss of work, health and other circumstances that may lead to insolvency will not matter.

Many people perceive the insurance that the bank requires as an increase in the cost of the loan, without thinking about what it actually is protection. And not so much the interests of the bank, but the borrower himself .

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What is mortgage insurance?

When issuing a long-term loan for the purchase of real estate against its collateral (mortgage), banks require this property to be insured.

Moreover, not only the collateral itself.

In order to minimize its own risks, the bank expresses a wish to insure life and health, as well as the risk of loss of ownership of the pledged property (title insurance).

At the time of the birth of mortgage lending in our country, insurers developed a comprehensive product that included: property insurance (which includes title insurance) and life insurance .

Insurance companies now offer comprehensive mortgage insurance, which includes all three types of insurance required by banks.

The property is insured against all risks , including a terrorist attack, which is not included in the list of insured events in a regular contract.

Apartment mortgage insurance does not apply to the insured's household property unless he/she has included it voluntarily.

Life insurance includes the risk of death from any cause and disability of groups 1 and 2 as a result of an accident.

Some companies include the risk of temporary partial disability.

The title provides insurance for loss of property rights as a result of various encumbrances (unaccounted heirs, incapacity of the former owner, seizure of property, etc.)

Title insurance applies only to secondary homes.

What is home insurance

Almost all banks offer their clients the opportunity to purchase real estate with a mortgage. The requirements for borrowers are quite flexible, the main thing is that the person can prove his solvency. In addition, standard mortgage loan terms include:

Age. A mortgage can be obtained by a citizen of the Russian Federation who is at least 23–25 years old. The maximum limit is 65 years.
Liquidity of living space. It is important for banks to know whether they will be able to sell the property if the loan is not repaid.
Availability of guarantors. Not all financial institutions require a guarantee, but if the loan amount is large, then you cannot do without them.

Experience, permanent employment and other real estate are also important. Another condition that banks impose on borrowers is insurance. There are several types of insurance, including life insurance. But most often the bank obliges to insure real estate purchased with a mortgage. Is apartment insurance required for a mortgage, or can I refuse insurance?

Reference: the terms of mortgage insurance are contained in Art. 31 Federal Law “On Mortgage”.

The question of whether it is necessary to insure an apartment is asked by all citizens who are planning to take out a mortgage loan. Yes, it will not be possible to refuse home insurance in this case, since financial institutions refuse to cooperate with such clients.

In addition, this procedure is beneficial not only to the bank, but also to the borrower himself. If something happens to the property (fire, flooding and robbery), then covering the losses will be the responsibility of the insurance company. And if the consequences of an insured event do not allow the home to be repaired, then the insurance company pays the bank the entire balance of the mortgage loan.

What is required to be insured?

Article 31 of the Federal Law “On Mortgages (Pledge of Real Estate)” obliges the borrower to insure the pledged property.

And it's all.

Only insurance of the mortgaged apartment is mandatory for a mortgage. By law, the bank cannot require life and health insurance for the borrower and co-borrower, if any. So does title insurance .

Sum insured

The insured amount is equal to the loan amount increased by 10%.

If the loan is issued in the amount of 1,000,000 rubles, then the insured amount will be equal to 1,100,000.

The borrower can take out insurance for the loan amount or for the full cost of the apartment.

The bank will claim to pay only that part that is equal to the mortgage debt. The rest will be received by the policyholder upon the occurrence of an insured event.

As the loan is repaid, the insured amount will decrease.

The disadvantage of incomplete insurance (when the insured amount is less than the actual value of the home) is that this amount may not be enough to cover the damage.

If you want to find out where and how you can get a mortgage with government support, we advise you to read the article.

When concluding an agreement, a schedule for payment of insurance premiums is drawn up, which is subject to agreement with the bank. Payment is made once a year, on the date indicated in the schedule .

Failure to pay the fee will result in the contract being terminated for the duration of the delay. The policyholder has the right to apply to the insurer to postpone the payment of the next premium. An additional agreement is drawn up and the bank is notified about it.

The first installment can be paid in installments, but only with the written permission of the bank. Banks provide this opportunity in exceptional cases.

As the sum insured decreases, the annual insurance fee also decreases..

The average tariff rate for property insurance starts from 0.1%, for life insurance from 0.15%, and for title from 0.2%.

Insurance conditions

As already noted, insurance of mortgage lending participants is voluntary. However, most borrowers enter into such an agreement to comply with the lender's request and avoid an increase in interest rates.

It is important to take into account that the responsibility to insure his life and health falls on the client until he fully fulfills the terms of the loan agreement.

That is, you will have to pay the insurance company annually, which, of course, will increase the amount of overpayment.

As for the terms of the agreement, they must comply with the requirements of the bank. Therefore, before signing the document, you need to pay attention to the following points:

the amount of the insured amount;
presence of a link in the text of the agreement to the loan agreement;
are all possible risks indicated;
whether the beneficiary is the creditor bank;
What is the procedure for repayment in the event of an insured event?

It is important that the insurance company is accredited by the bank.

As a rule, an insurance contract is not signed with a borrower who, at the time of the transaction:

seriously ill;
retirement age;
is a military man.

What influences the tariff?

The rate for title insurance depends on how many transactions with the apartment were made for its purchase and sale. If the apartment belonged to only one owner, the tariff may be equal to the base rate.

The insurance company independently sets the cost of life insurance for the mortgage.

The life insurance rate for a mortgage depends on age, profession, hobbies and health status.

In the medical questionnaire, the policyholder needs to answer a number of questions regarding his state of health and lifestyle (bad habits).

For men the basic tariff rate is higher than for women.

The rate will change over the years - the older the insured person, the higher the rate.

The first question in the questionnaire is the height and weight of the person being accepted for insurance. If the ratio is violated (high weight with short stature, or vice versa, too low weight), the tariff will be increased.

Moreover, the insurer has the right to require a medical examination . Each company has a list of diseases for which it does not accept insurance.

False information provided in the form will result in refusal to pay insurance coverage and termination of the insurance contract.

Insurance payment

In property insurance, payment can be made only by agreement with the bank.

The actions of the policyholder do not differ from the standard ones prescribed in the rules. Before deciding on payment and its amount, the insurance company coordinates this issue with the bank.

According to the law, only the owner or a person having an insurable interest can be a beneficiary (Chapter 48, Article 930 of the Civil Code of the Russian Federation).

In our case, in terms of debt, the bank becomes the beneficiary of the loan, but only in case of total damage.

If the damage is partial, the owner of the apartment will receive payment. These conditions must be specified in the policy.

Read the article about what an encumbrance on an apartment is and what its features are here.

Recalculation in case of early partial repayment of the loan

Often a mortgage is taken out with the participation of maternity capital. With its help, part of the loan is repaid.

Accordingly, the loan amount is reduced and on the date of the next payment, the payment schedule for insurance premiums must be revised .

A new loan repayment schedule is submitted to the insurance company, on the basis of which recalculation is made.

If there are several such early repayments throughout the entire mortgage loan insurance period, you need to contact the insurer each time

If an insured event occurs...

No one is insured against unforeseen situations, so if an insured event does occur, the borrower has every right to take advantage of what the insurance document offers. The paperwork procedure looks like this:

Contact your insurance company, and you need to do this as quickly as possible. The text of the agreement specifies the period during which the victim or his relatives are obliged to come to the office and report the incident.
Notification must be given only in writing. Most often, loved ones, plunged into shock, forget to observe important legal subtleties; employees, in turn, may take advantage of the panic and do not specifically remind them to submit a written application.
Moreover, when the application has already been written and registered, the applicant must take written confirmation that the notification has been accepted, which can also be notified by telegram or by sending a registered letter by mail. A call to the insurance company is not a statement of an accident, so in any case you will have to gather your strength and make a personal visit to the insurance company.
When processing the request, competent employees will definitely check whether premiums for existing insurance have been paid on time. Moreover, if payments were made, but with a delay, by law the company has the right to refuse to pay the money. Therefore, if you have already started registering insurance, you should complete the process by depositing money on the appointed date.
Also, the banking structure must be notified about the incident, because it was the credit institution that initiated the mortgage with insurance. The application is made by hand in writing.
The insured event is supported by a corresponding package of necessary documents, which includes originals and photocopies.

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Who needs insurance and why?

The bank tries to protect itself from the risk of loan non-repayment.

A borrower who finds himself in credit bondage for a long period cannot foresee all possible adverse events.

In the event of his death, the obligation to repay the loan will fall on his heirs.

When concluding an insurance contract, the insurance company will repay the loan.

When purchasing an apartment on the secondary housing market that has been in transactions several times, there is a risk of losing it as a result of various encumbrances.

Insufficient verification of the purity of the transaction can overnight deprive you of housing, for which you still have to pay and pay the bank.

For a small fee (compared to potential losses), you can protect yourself from all possible risks associated with loss of property, life and health.

What is the mortgage recipient insured against at Sberbank?

The main risks that are insured relate to loss of work or disability. The risk of death of the borrower is also insured. Otherwise, the responsibility for the loan passes to his relatives or co-borrowers, and, having the policy in hand, the heirs will not have to pay the debts. The insurance company will do this.

The client may become unable to work as a result of some illness or accident. In this case, he may be assigned a disability group. If no signs of deliberate harm to health are found in the borrower’s actions, then he may not worry about further payments.

REFERENCE. In addition to regular insurance, there is also extended insurance. It provides for the loss of work or ability to work for any reason (except for intentional harm, of course). Naturally, you have to pay for additional features: such a product is more expensive.

Agreeing to take out life and health will provide an opportunity to reduce the interest rate on the loan by 1%.

Choosing an insurance company

Now there is no such thing as accreditation of an insurance company with banks, but there is a list of requirements for them.

As a rule, the bank “unobtrusively” offers a list of insurance companies with which it cooperates . The secret is simple - the bank, as an agent, receives a commission for each insurance contract concluded.

If the borrower has a valid life insurance contract, the bank, when issuing a mortgage, does not have the right to require the conclusion of another one from “its” insurance company.

You can find a bank where such a policy will be accepted unquestioningly. In this case, it is necessary to draw up an additional agreement with the insurer on introducing a new beneficiary into the contract - the bank - in terms of the loan debt.

You may be interested in an article about what mortgage refinancing is; you can read about it here.

Is life insurance required for a mortgage, insurance cases and conditions.

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Is life insurance required for a mortgage, insurance cases and conditions.

To obtain a mortgage, you must enter into a life insurance policy. Most often, the insurance period should be equal to the period of the mortgage loan. It happens that even before deciding to buy real estate with a mortgage, a person has insured his life and does not want to change insurance company. In such a situation, you should find a bank that is loyal to previously concluded agreements.

Mortgage life insurance is beneficial to the borrower because it provides protection for the property. In the event of an insured event, the home remains the property of the borrower or his relatives. In such a situation, the insurance company will have to pay off the remaining debt on the loan. It is important that the bank where the mortgage is taken out and the insurance company are partners.

Tariff schedule

Compulsory insurance rates for all risks will be determined individually for each borrower. Tariffs depend on the age of the borrower, his state of health, and professional activity. The older the client, the more the insurance company will have to pay.

Mortgage life insurance rates range from 0.3-1.5% of the total loan amount. If, when applying for a mortgage, the profit of a second party was taken into account, then, as a rule, banks also require the execution of a life insurance contract for him. You will have to pay insurance once a year.

Important! From year to year, with the process of repaying the principal debt, the amount of payment under the life insurance contract will also decrease. This is because the exact amount of insurance paid depends on the amount of debt.

What insurance events are covered?

Here, specific conditions may depend on the bank; the requirements of Sberbank may differ from the requirements of smaller organizations. But, we can highlight the following cases when insurers will be required to consider the case “insurable”:

— The borrower received the first disability group. It is given for partial loss of ability to work;

— The borrower received the second disability group. It is received in case of complete loss of ability to work;

— Death of the insured person;

What conditions must be observed when insuring?

When taking out life insurance to obtain a mortgage, you will need to indicate all the illnesses that the borrower has or is suffering from. If a person is in the last stage of cancer, he will not be able to conclude an insurance contract, and therefore will not be able to take out a mortgage loan.

All illnesses must be reported openly and honestly. If you lie at the stage of applying for insurance, then if an insured event occurs, the company may use compromising information and refuse insurance payments. If everything is fine with your health, it is recommended to undergo a full examination and obtain an official medical report on your state of health.