In most cases, you don’t need a policy, but sometimes it can help.
What is credit insurance?
Usually, this is understood as the conclusion of the contract under which the insurance company will pay the debt of the borrower to the bank in the case of an insured event. What kind of insurance depends on the contents of the document. Most often, this involves the life and health of the debtor. Accordingly, he can claim payments in the following cases:
- Death (here the recipient will already be the family, which inherits the debts too);
- Temporary disability due to illness or accident;
- Disability due to disability.
Insurance products can be different and protect against, for example, the loss of a job or other life disasters.
But these are not all the insurances that can accompany a loan. For example, new car loans usually involve a hull insurance policy, which is the maximum coverage for damage and theft. Sometimes banks agree to make do with compulsory MTPL insurance, but this increases the risk that the client will not return the money.
Mortgages are often accompanied by home insurance against destruction, and a little less often by title insurance. The latter comes in handy if the deal is invalidated due to, for example, inheritance disputes or fraud with the apartment in the past. In general, the bank itself decides what set of insurance it wants to see.
So when thinking about credit insurance, and especially when taking out a loan, you need to understand what kind of contract you are entering into, whether you need it, and whether it will protect you in a disputed situation.
Is Credit Insurance Compulsory?
Those who take out a mortgage must insure the property against the risks of loss and damage. But a mortgage does not necessarily mean that you bought a house on credit and are living in it. You can also take out such a loan against the existing real estate – for example, to get money for a business, and as a guarantee provide the apartment. In this case, it should be insured too.
In other cases the policy is voluntary. Banks are prohibited to impose this service, calling it mandatory. Moreover, the employee should be informed that the insurance can be refused or – if you wish – you can contact any organization accredited by the bank and give details of the actual costs of the policy.
What happens if you refuse the credit insurance
In general, nothing terrible. But some consequences are possible.
You may be refused a loan.
The bank does not have to explain why they do not give you the money. After all, there are many additional parameters by which they evaluate the borrower.
What to do if you want to cancel the insurance
It happens that you have succumbed to the entreaties of a bank employee and received a policy. Or you have inattentively read the loan agreement and put your signature not only under it but also under the document for the insurance. In this case, you can get your money back.
According to the law, you have this right, but only within 14 days. This is the so-called cooling-off period when you can weigh the pros and cons and change your mind. You can only cancel your policy if you have not had an insured event and it’s voluntary insurance. For example, you don’t have to take out life and health insurance if you have a loan. You can return the policy.
If you want to cancel your insurance, write a free-form statement and tell the person what you intend to do. Specify how you want to receive the money. And add details if you choose to transfer. Attach copies of your policy, passport, free paycheck stub templates. It is better to print the application in two copies – ask the insurance company employee to put a mark on yours that they have registered the appeal.
When to think about credit insurance
It is possible not to take out insurance or to refuse it, but it is not always worth doing this. For example, if the loan is large and for many years, and it allows you to lower the interest rate. Spending money on a policy can help you save on overpayments.
This is especially true for annuity payments, when the total amount and the interest are divided into equal parts, according to the number of months on the loan. In this case, the structure of the payment is different: in the first few years, most of it is interest
Also, if you have a large multi-year loan, it’s a good idea to think about a safety cushion. If something should happen to the borrower, his relatives risk inheriting not only the property but also debts. And grieving is better if you’re financially secure.
In the case of a serious illness, too, there will be no time to pay the loan. In this case, the bank is unlikely to enter the situation, it’s a commercial structure. So, it won’t be a bad thing to pay off the debt using insurance.
Therefore, if you take a loan and the question of insurance is on the table, do not be so hasty, but calculate everything and make a reasonable decision. Just read the contract carefully so that the policy will work, and not just a piece of paper.
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