Life insurances associated with the formalization of mortgages
Homes for sale. Numerous real estate posters announce the sale of real estate
A specific form of life insurances is when it is associated with the mortgage (usually real estate mortgage). It consists of an insurances policy that covers the mortgage loan debt – which is normally subscribed in the purchase of a home – in case of death or disability of the person holding the mortgage life insurances. It may not be mandatory but banks usually require it for the granting of the loan.
In principle, the life insurances associated with a mortgage covers the outstanding amount of the loan, but the types of mortgage life insurances are much broader. The banks, often unilaterally, modify the clauses (clauses in some abusive cases such as the ground clauses, on the reference interest rates as well as the expense clauses on the formalization of the mortgage) according to their interests, of the debtor risk, expected repayment terms, etc.
When the contract of sale of the house is formalized, the mortgage loan contract is made at the same time (there are two notarial deeds) and the life insurance policy is also contracted
Usually the so-called mortgage life insurances policy is that it is an annual premium that must be recalculated since from one year to another the outstanding capital (which will be the one we insure) will decrease – especially if they make repayments – but at the same time the risk of insurances increases since the person’s age increases and therefore the possibility of his death.
Mortgage life insurance for the duration of the premium
The life insurances associated with the mortgage can be classified by the duration of the mortgage life insurances premium, usually it is an annual premium (reviewed annually), but it can be a single premium (duration of all or most of credit) and also monthly – very unusual practice.
Annual premium mortgage life insurances
It is the most common. The premium or fee is paid in advance each year and each year the cost is reviewed based on the outstanding capital and the insured’s age. The premium – if the life insurances is of outstanding capital – decreases every year since the outstanding capital decreases (although the risk for the increase in age also increases) and will decrease proportionally to the capital amortizations that can be made.
Single premium mortgage life insurances
Usually when the contract of sale of the house is made, the mortgage loan contract is made at the same time (there are two notarial deeds) and also at the same time the life insurances policy is contracted, paying the premium in advance for a number of years – 5, 10 or 15- which may or may not cover every year of the loan.
- Mortgage life insurances for the insured capital
- Mortgage life insurances with outstanding capital
- It is the most common and the one that benefits the insured most since the premium is reduced year by year. In this case, the insurances is updated every year based on the outstanding debt with the bank. As the insured capital is decreasing, the cost will decrease, although as the risk of age increases, it will be compensated, but at least the price will remain stable over the years.
This type of insurances is especially recommended when partial repayments are planned, since when the policy is reviewed annually the premium will go down and therefore the cost will be substantially lower.
Total life mortgage life insurances
The amount of mortgage life insurance does not vary and is constant over time, coinciding with the initial amount provided by the lender – the bank -.
This modality assumes that even if the outstanding capital decreases, the premium or fee is not reduced. If the death occurs – a cause that triggers the insurances – the bank should keep only the outstanding amount of the credit and the rest of the amount received by the insurance should be charged by the insured or his heirs. Special attention must be paid to the clauses, which may be abusive clauses, and which would guarantee that the entire amount was received by the bank when we have been paying for such insurances. Furthermore, in this case, when the insured’s age increases, the risk increases and the premium or quota may be increased year by year instead of decreasing as in the case of outstanding capital life insurances.
Individual and shared mortgage life insurances
The purchase of the house can be carried out by one or more people so the insurances calculation becomes more complex. In the case of two people, they can insure the capital in equal shares – fifty percent – for which two insurances will have to be made for the amounts insured – half of the loan. Each insurance will have a holder and a different risk or premium.
depending on the sex and age of the policyholder. If one dies the other will have to take care of his part only. However, it is sometimes convenient – if one of the people does not work or has low income – cover 100% in case of death or incapacity of one of the two members of the couple in order to protect the one who has no income or has few, Charges can also be distributed proportionally to actual income.
The life insurances registry
On many occasions, life insurances, due to ignorance of its existence by relatives or relatives when the causative event occurs – death, disability, disability, etc. – remains unpaid. To avoid this situation there are, depending on the legal obligation in the different countries, life insurances records that can always be consulted to know if there is any life insurance whose owner is the deceased or disabled person.
The main function of the life insurances registry is to prevent life insurances policies from being uncollected, due to ignorance of the beneficiaries of the existence of the policy.
This casuistry is quite common and this mechanism was created to avoid it as much as possible. The objective by which it was created is to provide the necessary information so that interested persons have the knowledge of whether a deceased person had contracted insurances in case of death and who is the beneficiary life insurances.