Loan Insurance Coverages: Protect Yourself Against Risks

Loan insurance coverage, also known as borrower's insurance, is a guarantee that protects the borrower and the lender in case of unforeseen events preventing the repayment of the loan. Whether it's for a mortgage, a consumer loan, or a business loan, this insurance is often required by banks to cover the risks associated with borrower default. This article explores the different types of loan insurance coverages, their benefits, and the factors to consider when choosing borrower's insurance.

What Is Loan Insurance Coverage?

Loan insurance coverage is an insurance policy taken out in addition to a loan. It guarantees the repayment of the loan in case of the borrower's death, disability, incapacity to work, or loss of employment. In the event of a claim, the insurer covers all or part of the remaining installments, according to the terms of the contract, thus protecting the borrower and their family, as well as the lender.

Different Types of Loan Insurance Coverages

There are several types of loan insurance coverages, tailored to different types of loans and the risks covered:

• Death and Disability Insurance: This insurance covers the repayment of the loan in the event of the borrower's death or total and permanent disability. It is generally required for mortgages.
• Disability Insurance: This coverage pays the loan installments in case of temporary or permanent incapacity of the borrower to perform their professional activity, due to illness or accident.
• Unemployment Insurance: Optional, this insurance covers the repayment of installments in case of the borrower's unemployment. It is often offered for consumer loans and mortgages.
• Comprehensive Insurance: This type of insurance combines multiple guarantees (death, disability, incapacity, unemployment) in a single contract, offering complete protection against the risks associated with borrowing.

Benefits of Loan Insurance Coverage

Subscribing to loan insurance coverage has several advantages:

• Financial Protection: The insurance protects the borrower and their family from financial risks in case of unforeseen events, avoiding the risk of over-indebtedness or property seizure.
• Peace of Mind: In case of a claim, the insurance covers the loan repayment, allowing the borrower to focus on their health or professional situation without worrying about installments.
• Banking Requirement: For mortgages, banks often require borrower's insurance to cover risks and guarantee loan repayment, which can also lead to better loan terms.
• Customizability: Loan insurance coverage can be tailored to the borrower's needs, with guarantees adapted to their personal and professional situation.

How to Choose Your Loan Insurance

The choice of borrower's insurance is crucial to ensure optimal protection while managing the cost of insurance. Here are some tips to help you choose the right insurance:

• Compare Offers: It's essential to compare borrower's insurance offers from different companies to find the one that offers the best value for money. Don't hesitate to use an online comparison tool to facilitate this process.
• Check the Guarantees: Make sure that the guarantees offered meet your needs (death, disability, incapacity, unemployment) and cover the risks you're actually exposed to.
• Consider Exclusions: Borrower's insurance contracts often have exclusions (certain illnesses, risky sports, etc.). It's important to read them carefully to avoid unpleasant surprises in case of a claim.
• Opt for Insurance Delegation: Since the Lagarde law, you have the option to take out borrower's insurance external to that offered by your bank. This insurance delegation often allows you to benefit from more advantageous conditions and better coverage.

Real-Life Examples

Let's say a borrower takes out a mortgage loan of €200,000 with death and disability insurance. In case of the borrower's death, the insurance will cover the full repayment of the remaining capital, relieving their family from this financial burden. Similarly, in case of temporary incapacity to work due to an accident, the insurance can cover the installments during the incapacity period, avoiding the risk of default.

Laws Regulating Loan Insurance Coverages

Loan insurance coverages are regulated by the Insurance Code and the Consumer Code. The Lagarde law, in particular, allows borrowers to freely choose their borrower's insurance, provided that it offers guarantees equivalent to those offered by the lending bank. It's also important to note that the Hamon law allows for a change of borrower's insurance within 12 months of signing the loan, and the Bourquin amendment allows for an annual change on each contract anniversary date.

Conclusion

Loan insurance coverage is an essential element to secure a loan and protect the borrower and their loved ones in case of unforeseen events. By choosing insurance tailored to their needs and taking the time to compare offers, the borrower can benefit from optimal coverage while managing the cost of their loan. Before subscribing, it's recommended to carefully read the general conditions of the contract and seek advice from a consultant to ensure making the best choice.