Borrower Insurance: Understanding Its Role in Securing a Real Estate Project
Taking out a mortgage loan generally commits a household for many years. With changes in income, personal circumstances, and unforeseen health issues, it is crucial to anticipate the risks that could affect the repayment of this loan. This is precisely the role of borrower insurance.
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What is a borrower insurance?
Also known as loan insurance, borrower insurance comes into play when a policyholder can no longer repay their loan. While not legally required in France, banks demand it for most real estate projects to mitigate the financial risk of a loan.
This coverage can cover all or part of the monthly payments, depending on the guarantees subscribed. In the event of death, disability, loss of autonomy, or work stoppage, the insurer compensates the lending institution under the conditions defined in the contract. For the borrower, this prevents an unforeseen event from permanently weakening their financial situation or that of their relatives.
Two Types of Possible Contracts
The Lagarde law, adopted in 2010, allows for the free choice of a loan insurance contract.
When taking out a mortgage, the first option is to sign a group contract offered by the lending bank. This solution pools the policyholders' profiles. Its rates are fixed, non-individualized, and determined based on the overall statistics of the bank's customers. Therefore, its guarantees and terms are standard and may not suit certain situations.
The second option is based on insurance delegation, also made possible by the Lagarde law. Thanks to this provision, the borrower can choose an individual contract with another organization, provided that the level of coverage is equivalent to that required by the bank.
The Various Guarantees of Loan Insurance
The guarantees are the core of a borrower's insurance contract.
Its main coverage remains the death benefit: if the insured person passes away before the end of the loan, the remaining capital owed is repaid according to the insured portion.
Disability-related guarantees are also essential. Permanent total disability (PTD) covers situations where the insured can no longer engage in professional activities on a long-term basis. Total and irreversible loss of autonomy (TILA) applies when a person needs the assistance of a third party for daily living activities.
Depending on the contracts, a temporary work incapacity (TWI) guarantee can also take over during a professional leave caused by an accident or illness. They can also include permanent partial disability (PPD), which reimburses part of the loan in the event of partial disability and the inability to perform a job.
Some plans finally include coverage in case of job loss, although this protection remains optional.
The Malakoff Humanis group specifically offers solutions tailored to individual needs, with an approach focused on social protection and support during important life events.
The Medical Questionnaire
Before accepting a file, the insurer may ask the borrower to complete a medical questionnaire. This document is used to assess the risk associated with the insured's profile and to tailor the contract conditions (amount of the insurance premium, coverage exclusions, etc.).
The information required includes: age, height, weight, tobacco and alcohol consumption, ongoing medical treatments, pathologies, disabilities, and past and future hospitalizations.
Each response provided must be accurate, as any false declarations can result in a denial of coverage in the event of a claim. Depending on the borrower's age, loan amount, or medical history, additional examinations may be requested.
However, thanks to the Lemoine law of 2022, regulations have evolved to ease access to insurance. Thus, the medical questionnaire is not required if the borrower is under 60 years old at the end of their loan repayment and the loan amount is less than €200,000 (€400,000 for two borrowers).
Can You Switch Borrower Insurance?
The Lemoine Law also allows the cancellation of an insurance contract at any time and free of charge, with a ten-day notice period.
This flexibility enables borrowers to look for a contract with lower monthly payments or one that is better suited to their personal situation.
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This content has been automatically translated using artificial intelligence. While we strive for accuracy, some nuances may differ from the original French version.
