Insurance of property, title, life and health of the borrower. What is necessary and what can be refused and what it threatens.
When registering a mortgage, banks also offer various types of insurance. Thus, financial institutions increase their loan repayment guarantees and at the same time help protect the client himself from problems with payments: if unforeseen circumstances arise, the risks are distributed between the insurer, the borrower and the banks. In difficult times, additional protection can only be at hand. We will tell you which insurance is considered compulsory and which is voluntary.
Obligatory, including by law, is considered to be the insurance of collateral in case of a mortgage. After all, all the time that the borrower pays off the debt, the acquired housing is pledged by the bank. Therefore, insurance against the risks of loss or damage is mandatory. This is provided for by Federal Law No. 102 “On Mortgage (Pledge of Real Estate)”.
If you do not buy an insurance policy, the bank will simply refuse to issue a loan. The only exceptions to the rule are those borrowers who buy housing in a building under construction: they simply have nothing to protect, because the apartment, in fact, does not exist yet. But after registration of ownership, you still have to take out this insurance. Until the loan is fully repaid, you will have to pay for this type of insurance. If the borrower at some point finds himself without extended insurance and disrupts the continuity of insurance, the bank may demand that the entire loan amount be repaid early.
In most cases, the standard policy protects the structural elements of housing. But sometimes insurers offer to add extended options to mortgage property insurance: protection of finishes, furniture, civil liability to neighbors, and others. This is already a question of the client’s desire, only standard basic property insurance is mandatory.
Borrower’s life and health insurance
Personal life and disability insurance for the client is voluntary, but, as a rule, it is still issued, because otherwise the bank will raise the rate at which the loan is issued.
As a rule, insured events here are:
- the death of the insured due to an accident or illness that occurred during the term of the contract;
- loss of ability to work as a result of illness or accident with the appointment of 1 or 2 disability groups.
Another type of mortgage insurance is title protection. What it is, we wrote in detail in a separate article. In short, it is insurance against loss of ownership . If the transaction is invalidated or the buyer is ordered to obtain housing (for example, minor relatives of sellers whose rights have been violated). It is understood that the payment of compensation from the insurance company will help the borrower not to remain in a situation when he no longer has an apartment, but there are obligations to the bank.
Here, the client also has the right to refuse insurance, but for the bank this increases the risks and the likelihood of an increase in the interest rate is high.
It is important to know
If the bank requires you to issue a policy with a specific insurer, this is a violation of the law. The borrower has the right to choose between several insurance companies accredited by the bank.