Borrower insurance: what is it for?


PROPERTY LOAN INSURANCE. Mortgage insurance is essential for any person who has taken out a loan.

In connection with a property purchase, mortgage insurance, also called borrower’s insurance, corresponds to insurance that allows the payment of repayment terms or the owed capital on a remaining loan in the event of a major event (death, total loss of autonomy, permanent disability, job loss, etc.) . If it is not mandatory, borrower’s insurance is often essential to get a mortgage. The credit institution “will almost systematically require the borrower to take out insurance: against the risk of death and total and irreversible loss of autonomy (PTIA) in the case of a rental investment; against the risk of death, total loss and irreversible autonomy (PTIA), disability and incapacity ( ITT), or even loss of employment in case of acquisition of a main residence”, can be read on the Assurance Banque Epargne website Info Service of the Banque de France.

In theory, mortgage insurance is not mandatory for taking out a mortgage loan, but in fact the loan institution can force the borrower to take out one. Borrower insurance generally covers unforeseen events such as the death, illness and disability of the borrower or a co-borrower, temporary or permanent, following an accident and loss of employment.

The bank generally offers the borrower its own mortgage insurance. However, he is free to choose another if he finds his bank too expensive and to perform what is called a insurance delegation. Provided, however, that the contract that he finally adheres to provides the same level of guarantee as that offered by the loan institution. It is therefore important that the borrower can compare the different mortgage insurance options he has.

Since 1 October 2015, financial institutions have been required to provide each individual borrower and co-borrower with a standardized sheet that describes the main characteristics of the borrower insurance offered, including total cost of mortgage insurance on the duration of the loan, expressed in euros, as well as the characteristics of the minimum guarantees required by the lender to obtain the latter. If the borrower takes out the insurance that the bank offers and later realizes that it is expensive compared to what the competitors offer, he can change it. It is very important to choose the right borrower insurance and to compare the available offers: the cost of home loan insurance can actually be more than 30% of the total cost of the home loan.

The borrower is covered by the guarantees in the borrower’s insurance agreement from the effective date stated on it. It is therefore she who marks the effective date of the contract, and not the date on which the document was signed.

You should know that home loan insurance rates can vary widely. They depend on the organization’s policy, but above all on the borrowers’ age and state of health, as well as the risks covered.

The calculation of the cost of the mortgage insurance offered by the lending institution is based on the amount of borrowed capital. The rate on the borrower’s insurance thus remains unchanged throughout the term of the loan. To calculate the average monthly payments to be paid under the mortgage insurance, it is therefore sufficient to multiply the rate of the borrower’s insurance by the borrowed capital and finally divide the number thus obtained by 12.

Example: If the mortgage insurance rate is 0.42% for a borrowed capital of 250,000 euros, the monthly benefit to be repaid under the borrower’s insurance will be equal to 87.5 euros (€250,000 x 0.42% / 12 = 87, €5). When delegating insurance, the calculation of the monthly benefits to be paid, and thus of the costs of the borrower’s insurance, is no longer based on the size of the borrowed capital, but on the size of the remaining capital.

The monthly benefit is thus recalculated every year according to an amortization table, and its amount is decreasing. To achieve a calculation close to the reality of mortgage insurance, it is ideal to use one of the many simulators available on the Internet. Enter amount, duration and rate of the loan, the calculator offers you rate average insurance that you can change. In an instant, the simulator calculates the amount of the monthly payments with the details of refund insurance.

Since the risks covered by mortgage insurance are difficult to estimate, insurance companies overestimate the amount of insurance premiums, which leads to an increase in insurance costs and ultimately the total cost of the mortgage loan. However, the law allows borrowers to be reimbursed part of the paid insurance premium at the end of each year when the implementation of the guarantees stipulated in the contract has not been necessary. Not to mention that insurance premiums are placed by insurance companies and therefore generate interest. The law stipulates that the interest generated in this way is also partially repaid to the borrowers. The problem is that the insurance companies repay the amounts due to the borrowers to the banks, but that the latter do not claim them. We are talking about 40% of the amount of insurance premiums that must be repaid to borrowers for mortgage loans, ie. an average of 3,021 euros per person for loans taken out between 1996 and 2012.

A situation that led UFC-Que Choisir to take major French banks to court in 2007. In a decision made on July 23, 2012, the Council of State ruled in favor of the federation. However, it does not specifically mention borrower insurance as being eligible for reimbursement of insurance premiums to borrowers. Furthermore, it is not specified whether these are group insurance agreements in the event of death. This leaves the banks free to interpret the decision from 2012 in their favour. In practice, it is therefore very difficult to recover one’s guilty party by initiating an individual inquiry with one’s bank, which is why ActionCivile launched a class action in 2014, which the Hamon Act made possible on the condition of gathering at least 100,000 complainants. The campaign in question collected more than double: 215,148.

In addition, an insured person can, in theory, request at the end of their home loan the repayment of the benefits of his mortgage insurance. Three conditions are required for this:

  • The additional premiums used by the insurance must not be used to repay the monthly installments on the credit after an injury
  • The loan must have been taken out between 1996 and 2005 for a mortgage loan
  • The request for reimbursement must be made within two years after the end of the mortgage loan.

To get your loaner’s insurance reimbursed, there are two ways: to file an individual lawsuit or a class action.

The use of a comparator on the Internet, such as Meilleurtaux, LeLynx, Magnolia or Lesfurets, can help you choose the most advantageous insurance. Some simulation tools predict the occurrence of disease or loss of employment, which for example is not necessarily interesting civil servants.

The conditions for switching borrower insurance have changed a lot in recent years. First, the Hamon law made it possible for borrowers to terminate the insurance of the lending institution in favor of an alternative contract offering the same guarantees at any time during the year after the signing of their credit, via a simple letter of termination, ideally with a receipt for receipt, sent by registered mail to their insurance company no later than 15 days before the end of the 12-month period.

Then, via the law on transparency, the fight against corruption and the modernization of economic life in 2016, known as the Sapin 2 law, the legislature introduced a provision that allows the annual termination of borrower insurance on the anniversary. , but this measure. was criticized by the Constitutional Council. Meeting on January 17, 2017 in a joint committee, senators and alternates passed the annual termination of borrower insurance (Bourquin amendment). For loan offers issued since 22 February 2017, the borrower can thus also terminate the bank’s insurance after the first year by means of a notice sent to his insurer no later than 15 days before the expiry date, but at least 2 months before, indicating the effective date of the new insurance agreement, which the lender accepts.

A provision which was to be extended to include all loan contracts from January 2018. But that was without counting the financial institutions that in the summer of 2017 seized the State Council and the Constitutional Council to obtain cancellation of the extension to all contracts. However, the Constitutional Council ruled on 12 January 2018 in favor of the annual termination of the borrower’s insurance, validating this option for all contracts. Since then, borrowers can therefore delegate insurance even after several years.

Now for the 3rd step which enables the borrower change the insurance contract at any time, free This measure was finally passed by Parliament in February 2022 and will come into force on 1 June 2022 (and 1 September 2022 for all contracts). The Lemoine Law adopts several measures that allow better access to the borrower insurance market, which is largely dominated by the banking sector: termination within one year (read the next section) and the end of the medical questionnaire for mortgages of less than 200,000 euros (400,000 euros for a couple), repaid before the 60th birthday. If the Lemoine Act is meant to increase competition and lower prices, some insurers are using the opportunity to raise their prices, Les Echos noted. According to them, the end of the medical questionnaire results in an increase in risks, the document makes it possible to identify borrowers who smoke or suffer from serious pathologies, profiles that are considered less safe. According to UFC-Que Choisir, the disappearance of the medical questionnaire results in a price increase of between 8% and 25%.

In this period of high inflation, do you want to commit savings? As of September 1, 2022, the Lemoine Act allows any borrower to change borrower insurance, without waiting for the anniversary date of the contract. We are talking about “infra-annual” termination. Applicable since June 1, for new contracts, it now applies to all contracts, regardless of their signature deadline. Changing the borrower’s insurance couldn’t be easier. Once you have found the ideal contract, send a letter to your bank, who will have 10 days to respond. She will send you an amendment to the contract, which you must send to the new insurance company. View our file without delay to find out more:

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