Mortgage life insurance: How does it work?
When applying for a home loan, you will also be required to subscribe to a life insurance policy. But why is it necessary to associate this insurance with the loan and how does this product work?
Why is a life insurance required for a home loan?
So that you can hire a mortgage credit, banks require you to subscribe to two insurance policies: a life insurance and a multi-risk insurance.
This is a mandatory step to complete the process, as it is a way for banking institutions to protect themselves.
Regarding life insurance, the objective is for the insurer to be responsible for repaying the loan if the customer is unable to pay the amount to the bank.
Depending on the chosen coverage, in the event of death or disability of the borrower, the bank becomes the creditor on the insurance policy.
In other words, by advancing with life insurance as collateral on a housing loan, the entity can propose a lower spread (rate that measures the level of risk).
Can I get insurance outside the bank or transfer it later?
As a rule, banks suggest you take out insurance with the associated insurer. But this is not a mandatory procedure.
According to Decree-Law No. 222 of 2009, which establishes rules on the celebration of insurance contracts associated with housing credit, banks cannot force a customer to take out insurance with their insurer.
The same law also ensures that, even in the middle of the contract, you can transfer the life insurance to another institution later.
Therefore, you can indeed choose to take out life insurance with an insurance company outside of the bank. However, the bank may penalize the spread of your contract.
The relationship between life insurance and spread.
If you choose not to take out life insurance with the bank's insurer, the banking institution may change the conditions of the home loan.
Usually, banks penalize the credit spread, increasing the rate and, consequently, the amount you will pay for the loan.
On the other hand, if you choose to get insurance from the bank, what happens to the spread is called a bonus. The bank decreases the interest rate as "compensation".
However, it is important to note that a low spread does not always mean cheaper credit. This is because there are insurers that provide insurance policies at significantly lower prices, depending on the coverage you choose.
So, it may happen that, even with a higher spread, it is worth contracting life insurance outside the bank. It is possible that you save more, even with a penalty on the rate.
It's a matter of putting your hands on the calculator and doing the math to confirm which situation is more advantageous.
Notify the bank of your intention, so that they can propose a simulation with a higher spread, contracting insurance externally, and another with a lower spread with the insurance contracted with them.
After, compare the two contexts. Always remember that sometimes cheap can be expensive. Coverages also matter, as you must take into consideration the needs of your family when choosing insurance, not just looking at the cost.
If you need help with life insurance related issues, the mediators Poupança no Minuto are available to support you. They handle all mediation with insurance companies, and answer all your questions about the process.