The mortgage loan is the largest disbursement that we usually make in our lives. For this reason, it is logical that we try to protect ourselves so that we can continue paying it in case something happens to us and our income is diminished. We can choose between two types of policies for the same purpose, although they are not the same. We tell you what differences there are between life insurance and loan amortization insurance, so that you can choose the most suitable one for you, or hire both.
The main difference: the beneficiary of the policy
Mortgage credit is a very important debt that a family has to assume for many years and we do not know if our situation can change and we will be able to face its payment. Hence the importance of protecting ourselves and our loved ones.
He mortgage repayment insurance It is a payment protection insurance associated with the mortgage that, in the event of death, temporary work incapacity or unemployment of the policyholder, releases his heirs from total or partial payment of the debt, depending on the insured capital. In this way, your family can continue to have the home without worrying about expenses.
In a traditional life insurancethe policyholder chooses who he wants to receive the compensation money in the event of death or absolute total disability.
In other words, the function of the two products is exactly the same: to protect your heritage and that of your family in case something happens to you. The main difference is in the beneficiary of the policy.
How does mortgage amortization insurance work?
It is just like traditional life insurance. It only changes who receives the compensation, the bank. Since their objective is to protect the payment of the house to the bank, these policies are usually contracted for the principal of the loan and for the duration of the loan.
But it is also possible to insure for more money than the total granted by the bank. That is to say, This policy is totally flexible since it adapts to the circumstances of each one, offering several possibilities of payment, price and insured capital.
Loan amortization insurance ensures us to pay the outstanding mortgage premiums in the event of becoming unemployed or suffering from work disability.
There are usually two types of products to ensure the repayment of the loan:
- Annual renewable payment protection insurance. It covers the guarantees of death, absolute permanent disability and severe disability. Your premium is paid annually.
- Payment protection insurance with a financed single premium. It also protects in the event of death, unemployment and temporary work incapacity, but its premium is charged in full at the time of entry into force and its amount is added to the capital lent.
It is usually the one that banks offer the most, without explaining that this option is more expensive, since it not only forces you to disburse more money than the credit already implies, but it is also included in the total loaned capital, which implies having to pay interest for the insurance as well.
Life insurance protection
The main risk covered by life insurance is the death of the insured, whether natural or by accident, or absolute total disability. Hence, depending on the needs and preferences of the policyholder, other types of additional coverage are usually added to have greater protection, such as double or triple capital, repatriation…
But the most common extra guarantees are:
- coverage by permanent or temporary disability: Covers the risk that due to illness or accident, whether in the work or personal environment, the insured cannot continue with their work or professional activity.
- coverage by serious illness: The insured is covered in the event of suffering a serious illness, for example, cancer.
- coverage by disability or accidental death: Many life insurances offer extra compensation for death or disability due to an accident. In the event of a traffic accident, the beneficiary can receive triple compensation.
Changing insurance is easy and possible
When signing a mortgage, it is common for the bank to offer us to contract life insurance, loan or mortgage repayment, and home insurance with them. The law does not require having these policies, although it is common practice in many entities to “encourage” signing with them in exchange for better credit conditions.
However, recent studies have shown that Taking out insurance with the bank and with the same coverage is up to two times more expensive than doing it with an insurer. In fact, you can cancel the life insurance with the bank and choose a more advantageous one that offers you the same protection. The insurance can be canceled within 30 days after contracting it, or after one year and giving a month’s notice. In both cases, it is enough to notify the bank.
The best option: life insurance and loan repayment insurance
Mortgage life insurance takes care of paying the house. However, a family that has lost one of its members not only has to continue paying the mortgage. The loss of a family member implies many other expenses and means less income in the home. Covering all this with the same policy supposes a very high premium.
It may be interesting to take out the two policies: one intended to pay for the home and the other to help the family with expenses.
But there are more reasons to take out both policies. You have to think that traditional life insurance covers the policyholder in case of absolute total disability, something decided by the National Institute of Social Security (INSS). In fact, most of the disabilities that are being recognized are partial; In other words, you can continue working, so the amount of the benefits is very low and does not allow you to meet the usual expenses.
Therefore, taking out loan repayment insurance can be a good help, since it includes coverage for unemployment and partial or total work disability. It is an option, for example, for a freelancer. If he gets sick and can’t work, he has no income. Also at a certain age, when a dismissal may mean not finding a job again and being left alone with the subsidy, which would not make it possible to pay the mortgage loan.
We must be realistic: total permanent disability is more common to occur during working age and it is difficult for a company to hire us for a profession other than the one we have always practiced, after turning 50. Hence the importance of contracting this policy early ages, to be protected if it happens, because once we already have a degree of disability recognized by Social Security (even if it is little), no insurer will cover us for disability or illness.
It is true that having two policies implies paying two premiums each year, but it does not have to imply paying more than with just one, adding guarantees.
The most practical thing is that you enter this online comparator and study all the offers on the market. In this way you can see if it is more worthwhile to have a single larger policy or two with smaller premiums. In any case, whatever our decision, both insurances are very beneficial for the household economy. Thus, regarding the differences between life insurance and loan amortization insurance, it is that life insurance delivers a signed amount of money after the death of the owner, while the other type of policy pays the mortgage to the bank, in the event of the holder’s death and also if he becomes unemployed or suffers temporary work incapacity. If you have any questions, ask our experts for advice on the telephone numbers 91 218 21 86 and 932 990 416.
