Life insurance for mortgage: How does it work?
When hiring a home loan, you will come across the requirement to also subscribe to a life insurance. But why is it necessary to associate this insurance with the loan and how does this product work?
Why am I required to have life insurance for a housing loan?
So that you can hire a home loan, banks require you to subscribe to two insurances: a life insurance and a multi-risk insurance.
This is a mandatory step to conclude the process, as it is a way for banking institutions to protect themselves.
With regard to life insurance, the goal is for the insurer to be responsible for repaying the loan if the customer becomes unable to pay the amount to the bank.
Depending on the coverage chosen, in case of death or disability of the borrower, the bank remains as the creditor in the insurance policy.
In other words, by advancing life insurance as collateral in a home loan, the entity can propose a lower spread (rate measuring risk).
Can I purchase insurance outside the bank or transfer later?
As a rule, banks suggest that you take out insurance with the associated insurer. But this is not a mandatory procedure.
According to Decree-Law No. 222/2009, which establishes rules on the signing of insurance contracts linked to mortgage credit, banks cannot force a client to take out insurance with their own insurer.
The same law also ensures that, even halfway through the contract, you can transfer life insurance to another institution later.
Therefore, you can choose to take out life insurance with an insurance company outside the bank. However, the bank may penalize the spread of your contract.
The relationship between life insurance and the spread.
If you choose not to take out life insurance with the bank's insurer, the bank may change the conditions of the housing loan.
Usually, banks penalize the spread of credit by increasing the rate, and consequently, the amount you will pay for the loan.
On the contrary, if you choose to take out insurance with the bank, what happens to the spread is called a bonus. The bank reduces the value of the rate as "compensation".
However, it is important to note that not always a low spread represents cheaper credit. This is because there are insurers that provide insurance subscriptions with significantly low prices, depending on the coverage you choose.
So, it may happen that, even with a higher spread, it is worth hiring life insurance outside the bank. You may save more, even with a penalty on the rate.
It is a matter of getting hands on the calculator and doing the math, to confirm which situation is more beneficial.
Inform the bank of your intention, so that they can propose a simulation with a higher spread, contracting the insurance outside, and another with a lower spread with the insurance contracted with them.
Afterwards, compare the two contexts. Always remember that sometimes, the cheap option ends up being expensive. Coverages also matter, so you should take into consideration your family's needs when choosing insurance, not just looking at the cost.
If you need help with life insurance issues, the brokers Poupança no Minuto are available to support you. They handle all mediation with insurers, and answer all your questions about the process.