Loan Insurance: The Traps to Avoid Before Signing
Mortgage insurance, also known as borrower insurance or home loan insurance, is an essential element in financing a property. Too often seen as a mere formality, it can actually represent up to 30% of your total loan cost. Choosing it carefully means protecting both your budget and your family.
In this article, discover the main traps to avoid before signing loan insurance and solutions to reduce your costs while maintaining effective coverage.
1. Understanding Mortgage Insurance
When you take out a home loan, the bank requires you to be insured. Borrower insurance takes over if you become unable to repay your loan due to death, disability, or incapacity for work. Some policies also include job loss.
But contrary to popular belief, you are not required to accept the insurance offered by the bank. Thanks to the Lagarde, Hamon, and Lemoine laws, you have the right to freely choose your loan insurance, when signing the loan or at any time afterwards.
2. First Trap: Believing Bank Insurance is Mandatory
The majority of borrowers accept the group insurance offered by their bank without comparing. Yet, this so-called “collective” solution is often more expensive and less personalized. An external insurance policy—known as a delegation of insurance—can reduce the total cost of your loan by several thousand euros.
Concrete example: Sophie and Julien, 34, borrow €220,000 over 20 years to buy their main residence. Their bank offers them group insurance at 0.36% of the borrowed capital, or about €15,840 over the full term. By choosing individual insurance at 0.15%, the cost drops to €6,600. Result: a saving of over €9,000 with no loss of coverage.
- The bank cannot refuse another insurance if the guarantees are equivalent.
- The Lemoine law allows you to change loan insurance at any time.
- Individual insurance can be adjusted according to the age, occupation, or health of the insured.
3. Group Contract or Individual Contract: What’s the Difference?
The Group Contract
The group contract is the one offered by the bank to all its clients. It pools risks: young, non-smokers, and active people often pay more to offset higher-risk profiles. It’s a quick solution to set up but often not competitive.
Advantages: simplicity, immediate subscription.
Disadvantages: standardized coverage and prices poorly tailored to your profile.
The Individual Contract (Delegation of Insurance)
With an individual contract, insurance is taken out with a provider other than the bank. It is personalized according to your profile (age, occupation, health status, sports practice…). This type of contract is generally cheaper and more flexible.
Tip: before choosing, always ask for the standardized information sheet (FSI). This document summarizes the guarantees required by your bank and allows you to easily check the equivalence of guarantees between several offers. This avoids unpleasant surprises and speeds up lender approval.
In summary: the group contract is simple but rigid; delegated insurance is flexible and often more advantageous.
4. Second Trap: Not Comparing Coverage
Not all borrower insurance policies are equal. An attractive rate sometimes hides significant exclusions. Before signing, analyze the coverage offered:
- Basic coverage: death, total and irreversible loss of autonomy (PTIA).
- Optional coverage: temporary incapacity for work (ITT), permanent disability, job loss.
- Common exclusions: risky sports, back conditions, psychological disorders, certain professions.
Do not limit yourself to the TAEA (annual effective insurance rate). Check the contract details: waiting period, indemnity period, and coverage conditions.
5. Third Trap: Ignoring Your Rights Under the Lemoine Law
Since 2022, the Lemoine law has made life easier for borrowers:
- Change your insurance at any time, free of charge and without justification.
- Elimination of the medical questionnaire for loans under €200,000 per insured (repaid before age 60).
- Right to be forgotten reduced to 5 years for former patients.
These measures enable everyone to obtain fairer loan insurance and achieve significant savings, even several years after signing the loan.
6. Fourth Trap: Neglecting to Compare Offers
Comparing multiple loan insurance policies is essential. A mortgage simulation or borrower insurance comparison tool lets you see price and coverage differences in just a few minutes.
- Compare the total insurance cost over the full term of the loan.
- Check that the contract meets the guarantee equivalence required by the bank.
- Use a borrower insurance broker to find the best value for money.
7. Fifth Trap: Underestimating Medical Formalities
The health questionnaire is a crucial step. A false statement can render the contract void. Always be honest. In the case of aggravated health risks, the AERAS agreement helps you obtain insurance and access credit.
8. In Summary
| What to avoid | What to do |
|---|---|
| Signing without comparing | Compare several borrower insurance offers |
| Accepting the bank’s insurance without thinking | Study delegated insurance offers |
| Focusing only on price | Analyze coverage and exclusions |
| Ignoring the Lemoine law | Take advantage of the right to change at any time |
| Minimizing medical formalities | Be honest and seek advice |
9. Conclusion
Choosing the right mortgage insurance is not a mere formality; it’s a strategic financial decision. By comparing offers, understanding your rights, and making the most of the opportunities offered by the Lemoine law, you can save several thousand euros while maintaining strong coverage. Before signing, take the time to compare: your wallet and your peace of mind will thank you.
