Credit insurance – is it worth it and can you opt out?
Currently, credit insurance is offered in various types of policies. It raises the question of which death insurance, life insurance, unemployment insurance or other insurance policy to choose. Credit insurance is a preferential solution, thanks to which many borrowers get lower loan costs. When deciding on insurance, it is worth knowing its specifics and the possibility of terminating the insurance, rules for calculating the insurance return.
An insured loan is a secure solution. Thanks to it, the borrower can be certain that when he dies, becomes ill or loses his job, the insurer will transfer funds to repay the loan. It also indirectly protects the borrower’s relatives, as they will not be as relatives or heirs responsible for paying his debts. A loan without insurance is very risky and can lead to serious financial problems in the borrower’s family.
What is loan insurance?
Credit insurance is a policy under which, according to the General Insurance Terms, funds will be paid to repay the loan when the insurance event to which the policy applies occurs. In practice, the purchase of a credit insurance policy is most often financed from the loan funds, and the bank acts as an intermediary in the sale of this insurance. This insurance can come in different types, e.g. as death insurance , loss of employment insuranceor life. The insurance policy is currently available as a product for various types of loans, e.g. as cash loan insurance, trade credit insurance, mortgage insurance and even installment loan insurance. More specialized policies are also known, e.g. mortgage bridge insurance or low own contribution. Many future borrowers are wondering how credit insurance works . In simplified terms, it looks like when a sudden negative event occurs in their lives, the insurer pays funds to a dedicated bank account, leading to the repayment of part or all of the loan (depending on the scope of insurance).
Is credit insurance mandatory?
U been secured mortgage is usually obligatory – is for the bank additional collateral for repayment of debt obligation, usually granted for many years (high risk). Loan insurance against job loss is also mandatory for many cash loan contracts , when the borrower concludes a loan contract and is employed for an indefinite period.
Can I opt out of credit insurance? Is the loan insurance reimbursed?
Cancellation of credit insurance is possible, and the insured will then receive a refund of insurance for the unused coverage period. Here comes the first question of how to opt out of credit insurance. This is usually done so that the insured must submit a special instruction to the bank, entitled: resignation from insurance / termination of insurance / withdrawal from insurance .
After resignation, another question arises – how much time do you have to wait for your loan insurance return? It depends on the type of policy, the contract concluded with the selected insurance company, usually from 14-60 days.
Insured also have doubts on how to calculate the return of credit insurance. Contrary to appearances, it is simple, just apply the principle of proportionality, calculating the following action: product of the paid insurance policy premium (S) and the quotient of the days of insurance coverage used / the total number of days of insurance coverage paid. Opting out of installment loan insurance is also possible, but it is worth to read the installment loan agreement carefully. It is a common market practice that such insurance is a product sold by a store, not a bank. Then the insurance cancellation policy should be directed to the store where the credited product was purchased.
The resignation from the insurance is possible during the loan repayment. Of course, the borrower will recover funds for unused protection (the advantage of resignation), however, he will lose the security of its repayment (defect of resignation). Many banks, also (if the provisions of the loan agreement provide for it) increase their interest rate after they resign from insurance during the repayment of the loan. Unfortunately, this is another disadvantage of canceling the policy during loan repayment.
Cash loan insurance and borrower’s death – how to proceed?
We know what gives credit insurance, it is reasonable to verify what the procedure looks like when the insured borrower dies. If, on the day of death, he still had an active life insurance policy, the family should notify the relevant insurance company and the bank about this event by providing primarily the death certificate of such a person, but it is also worth (if issued) an inheritance document (confirmation of acquisition of an inheritance, act inheritance credentials). This guarantees the person access to full information, e.g. protected by banking secrecy regarding payment of the benefit. It is also important to stay in touch with the insurer, e.g. if he asked for additional documents, e.g. medical history, cause of death of the insured. In this case, when we deal withcredit insurance against death, after the payment of the benefit, the funds are paid into a dedicated credit account, and then, when the amount is sufficient, it closes. If it is mortgage insurance after death, then there is one more stage, after closing the repaid loan – the bank’s removal from the mortgage of the given real estate or real estate on which the loan repayment security was established.