The most common thing is to think of life insurance as the best option to cover our backs, however, there is another alternative: loan repayment insurance . It is a policy designed for mortgages that is activated by taking charge of the pending debt when one of the claims contemplated in the insurance contract occurs.
If you have a mortgage and want to not worry, this article is for you. Read on and find out how mortgage amortization insurance can help you get things under control.
What is loan repayment insurance?
Loan amortization insurance is very similar to life insurance. It is a product that covers the payments associated with a mortgage in the event that the policyholder dies or suffers an accident that prevents him from working and generating income.
As well as life insurance, loan amortization is a good alternative to free our loved ones from the responsibility of paying the outstanding debt (according to the insured percentage).
How does mortgage amortization insurance work?
The first thing to be very clear about is that loan repayment insurance is mainly focused on covering the mortgage loan that the insured has contracted with a bank .
The capital that remains covered corresponds to the amount that is pending settlement to the bank. In this way we are protecting our heirs by preventing their assets from being compromised to pay off the debt.
The main coverage offered by this type of policy is the death of the insured for any reason, however, it is possible to contract additional guarantees such as absolute disability and permanent disability.
Is hiring mandatory?
Absolutely not. No bank entity can force us to take out life insurance or loan repayment insurance in order to grant us the mortgage. In fact, the only type of insurance that is mandatory to contract when a mortgage commitment is acquired with a bank is fire insurance.
Now, although taking out a life policy or a loan repayment policy is not a necessary requirement to obtain the “yes” from the bank, it is more than advisable if you want to protect the future of those who depend on you.
If you dare to hire him, analyze several options. Although the bank will be very insistent that you contract one or more products linked to the mortgage, it is likely that you are missing the opportunity to save a few euros and obtain better benefits if you do it directly with an insurance company. It’s all a matter of comparing different alternatives!
Advantages of loan repayment insurance
- They are products that enjoy flexibility. A loan amortization insurance adapts to the needs and circumstances of the borrower. There are, for example, different payment alternatives and insured capital.
- One of the main advantages of this type of policy is that the premium remains constant throughout the life of the insurance.
- The insurance has the same duration as the mortgage loan to which it is linked.
- The loan repayment insurance can be canceled within 30 days of contracting it or after one year, provided that the insurer is notified one month in advance. In both cases, it is necessary to communicate the decision to the insurance company.
- In terms of tax advantages, the insured debt can be settled directly without the payment of death contingencies entailing a tax burden or impact.
Life insurance or loan amortization insurance? Are they similar products?
Both are products that protect those who matter most to us, however, and despite what many customers think, they are different policies.
One of the main differences is that when life insurance is contracted, the insured capital will be delivered as compensation to the beneficiaries when some of the claims contemplated in the insurance contract occur. On the other hand, loan amortization insurance is a product that, as its name indicates, serves to amortize the cost of the mortgage.
In other words, when a mortgage amortization insurance is signed, there are no direct beneficiaries, therefore, no amount is remitted to the relatives. What happens is that the insurance frees the heirs from the mortgage burden, taking charge exclusively of the outstanding mortgage payments.
Which of the two suits me better?
There is no better insurance than the other. The decision to take out life insurance or loan repayment insurance will depend on the financial situation and needs of the insured and his or her family.
Remember that both products intervene in the protective field. Before making a decision, analyze what are the economic commitments that in your absence would affect the economic stability and the future of your loved ones.