Credit insurance secures the repayment of liabilities in case of unexpected fortuitous events or damage to real estate. The purpose of insurance is to help repay individual installments or the entire loan.
Its purchase is voluntary and it is only up to you whether you want to take advantage of the loan insurance option. There is one case where the borrower is required by the bank. This is the case with a mortgage. Then it is mandatory to purchase property insurance. However, most banks do not impose an offer – the borrower has a free hand in choosing such a policy.
It is worth paying attention to the products offered by banks, because often in exchange for their purchase, the borrower proposes to reduce the loan margin or offers additional promotions.
What are the types of loan insurance?
Which loan insurance you choose depends on your expectations and the nature of the loan as well as the bank’s requirements. The most popular types of insurance include:
- Life loan insurance – also known as death insurance. It protects both the borrower and the bank. In the event of the borrower’s death, the insurer is obliged to repay the loan, unless otherwise provided for in the contract. Life loan insurance is important because the loan is inherited – if you fail to pay it back before you die, you will charge your loved ones with debt .
- Credit insurance against permanent invalidity – if the borrower suffers an accident and he is granted the status of an invalid, he is entitled to repay the remaining debt by the insurer. Usually, in this case, together with the application, you will need a certificate from ZUS about disability.
- Insurance against incapacity for work – if, as a result of an accident at work or illness, the borrower loses the opportunity to practice, he is entitled to repayment by the insurer. Also in this case the borrower will have to prove his disability.
- Insurance against loss of job – obliges the insurer to repay, usually 6-12 loan installments, provided that the borrower has not been dismissed through his own fault. Usually, this type of insurance is only for people who have a contract of employment or a business.
In addition to the types of insurance listed, you can also specify mortgage insurance, but about it in the next section.
Also called real estate insurance. Conclusion of a contract in the case of mortgage insurance is possible in two ways: through the bank or with an insurer of your choice. However, it should be remembered that the agreement must meet the requirements imposed by the bank.
Mortgage insurance provides payment for damages resulting from unfortunate events that may cause a decrease in the value of the property, e.g. fire or flood. However, the funds do not go to the borrower, but to the bank, which thus covers the cost of the loan.
What to look for when choosing loan insurance?
First, consider whether you really need insurance and if the answer is affirmative, then what type should it be. It is not worth insuring a loan worth $ 500, but if its value is calculated in tens or hundreds of thousands, it should be treated as an obligation.
When choosing insurance pay attention to even the smallest record. Although such agreements may seem extensive and complicated, learning the terms will help you avoid later problems and unpleasant surprises. Focus primarily on:
- insurance coverage,
- restrictions given,
- the possibility of resignation,
- total insurance,
- insurance cost.
Do not forget to pay attention to the exclusions in the contract and the grace period.
What is the GTC and why do you need to read this?
The GTC are the General Terms and Conditions of Insurance. It can be said that these are the most important insurance provisions – important dates, exclusions, rights and obligations. It is here that the situations in which you are entitled to compensation from credit insurance and where no one will grant it are recorded.
The GTC should be read very carefully, because it may turn out that there are slightly different entries here than those previously discussed with the insurer. Although it can have several pages, take some time to read this entry and understand each point.
Cancellation of credit insurance – is it possible and how much does it cost?
The borrower may at any time opt out of insurance. However, it should be remembered that this involves a change in the terms of repayment of the liability. For example, a bank may increase the loan margin or interest rate. You will learn about the conditions from the additional provisions contained in the contract.
To opt out of credit insurance, simply write an application to the insurer, containing the exact details and contract number.
Early repayment – what about insurance?
If you were able to repay the loan earlier than it was stated in the contract, you are entitled to a refund of insurance costs. Of course, only for the remaining repayment period. To obtain payment, you must submit a relevant application to the bank. However, the funds are not returned from the insurer’s account – the insurance company sends the money to the bank and the latter to the borrower.
Is it worth insuring your loan?
Each form of contracting involves some risk because you cannot predict what will happen when you repay the loan. And the longer the repayment period, the greater the risk that each installment will not be repaid. While in the short term you can have an impact on your health, for example, can you predict what it will look like in 15 years?
Although insurance may seem only an additional cost, it is really worth using it for larger loan amounts. In this way you protect not only yourself, but above all your family, which in the event of an accident may be charged with the payment of debts.