Many borrowers, getting a loan from a bank, go to all the trouble to get a loan approved. However, in the second year, the desire to pay for the policy is lost. Is it compulsory to insure your life and apartment every year on a mortgage, and what happens if you do not extend the policy? Let’s talk about life insurance when buying a house.
What policy can I cancel in the second year?
Since life and health insurance, as well as protection against inability to continue repaying the loan due to loss of employment are voluntary, the borrower must renew it every year only voluntarily. You can refuse the above-mentioned types of insurance in the second, third and subsequent years. However, this does not always happen without consequences.
Banks do not benefit from the lack of insurance for the borrower. That is why they have developed different wording in the contracts, as well as schemes of tripartite agreements, which minimize the possible refusal to insure. There are two very common ways to counter the refusal to renew insurance each year:
- Raising the interest rate on the loan.
- Entering into a collective insurance agreement with payment in installments.
Raising the interest rate
When entering into an agreement, the borrower is offered two options to choose from:
- A lower interest rate on the loan, but with life insurance;
- Without life insurance, but a higher interest rate.
What is home and life insurance in a mortgage?
Before getting a home equity loan, the banking institution insists on taking out an insurance policy. The lender’s goal is to maximize the safety of the funds disbursed. When insuring the life or health of the debtor, the insurance company pays the remainder of the mortgage to the bank if the borrower died, received a disability. A separate paragraph in the contract specifies the situation in which the insured goes on long-term sick leave.
For the banking institution life insurance of the borrower is an additional guarantee of the safety of the issued him money for the mortgage. If an insured event occurs, and this concept includes the death of the borrower, getting a disability.
That’s why lenders insist on obtaining a life insurance policy with a mortgage, so that in case of an unforeseen situation, the insurance company will either repay the borrower’s debt in full, or take over payment of its obligations for a certain period (in the case of registration of a prolonged sick leave). Life insurance is not a mandatory condition for obtaining a mortgage loan. And it can be waived. But in this case, some banks increase the interest rate, which makes it pointless to refuse to buy the policy.