A loan repayment insurance is a type of insurance that consists of protecting the payments associated with a loan, in this case, a mortgage.
The way to protect payments is that in case of death, work disability or unemployment of the holder of the contract, it has coverage that guarantees not having to pay all or part of the capital owed on the mortgage (depending on the percentage insured of the mortgage). Thus, when contracting a loan repayment insurance, the family members will not have to bear the entire debt, but it is the insurance that takes over.
By definition, loan repayment insurance is similar to life insurance. However, there is a big difference between the two. The main purpose of life insurance is to provide an amount of money to the beneficiaries of the policy in case the insurance holder dies, being able to use this amount for what the family needs. For its part, the loan repayment insurance aims to ensure that the insurance company takes over the loan payments that the deceased person has left pending.
Advantages and coverage when hiring loan repayment insurance
This type of insurance is not mandatory and involves an expense called a premium. However, it has the following advantages or coverage:
Wide flexibility: the loan repayment insurance can be contracted in a way that suits the circumstances of each one. Thus, it offers different possibilities of payment, price and insured capital. An example of this is that you can choose the percentage of insured capital of the mortgage (100%, 50% or whatever you prefer).
Different cancellation modes: one of the advantages is that loan repayment insurance can be canceled in different ways. It may be during the first 30 days after contracting the insurance or after one year notifying one month in advance.
Without fiscal impact: the insured debt can be canceled so that the payment of the contingencies of death does not have any type of fiscal impact.
Types of loan repayment insurance
Mainly, we can distinguish between two types of loan repayment insurance:
Insurance in which the amount paid by the insurer is equal to the amount owed on the loan. In this case, the payment decreases as the loan is amortized and the insurance coverage period is the same as the loan.
Insurance in which the amount is not altered at any time during the period of the insurance contract. In this case, the insurer pays the bank the amount to be amortized and the excess to the people who benefit from this insurance.
What entities offer mortgage loan repayment insurance?
One of the entities that offer loan repayment insurance is BBVA. The BBVA Variable Mortgage has one of the best interest rates on the market: Euribor + 0.89% (APR 1,628%) and has no opening commission. In return, he requests the contracting of a multi-risk home insurance and loan repayment insurance with BBVA Seguros.
Thus, BBVA distinguishes between two types of products with death guarantees to secure the mortgage.
Renewable annual payment protection (TAR) insurance: when this insurance is contracted, the premium is paid annually and death guarantees, absolute permanent disability and a high degree of disability are covered.
Payment protection insurance with a single funded premium (PUF): in this insurance the premium is charged in full at the time the insurance is enforced and its amount is included in the borrowed capital. The coverage offered is death, unemployment and temporary work disability.
In addition, the good thing about PUF insurance is that the customer from the beginning knows the cost of the insurance, there is no risk of default and that having the same capital and term insured as in TAR insurance, the cost is lower.
It is important to keep in mind that sometimes banks may or may not condition the granting of the mortgage loan through the hiring of a series of links. That is, if the loan repayment insurance is not contracted, in this case, the entity can increase the interest rate, worsen the loan conditions or even deny the granting of the mortgage.