When applying for any loan product, potential borrowers are always offered to take out loan insurance. This is an additional service that is designed to protect the client in case of unforeseen situations. If they come, the insurance company covers the loan for the person. But this is not such a simple service, it must be understood.
Many banks, information about which is presented on Brobank.ru, offer loan insurance to borrowers. But most of the programs are voluntary. This means that they can be abandoned. Many borrowers do not know about this and buy services that they do not really need.
Compulsory types of insurance
Before considering voluntary programs, we will study what kind of credit insurance will be a prerequisite for obtaining a loan. In fact, these are just two programs:
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- with a mortgage. We are talking about buying a policy that protects property that will serve as collateral. The bank must receive guarantees, therefore, without purchasing an additional service, it is impossible to obtain a mortgage;
- with a car loan. Many banks indicate the mandatory purchase of a CASCO policy, indicating the lender himself as the beneficiary. This is also a method of protecting the mortgaged property. There are car loans without CASCO, but banks have the right to require its mandatory presence.
Only these two options are mandatory, all other bank insurances are voluntary. That is, the borrower himself decides whether he needs protection or not. But many managers put the case in such a way that without insurance, the loan is allegedly not issued. This is a lie told in order to fulfill the plan to sell additional services.
Why do you need credit insurance?
Many citizens are initially negative about this service, they consider it extortion of money. Indeed, the cost of the policy can be high.
And most often it is included in the body of the loan, thereby increasing the overpayment. For example, when receiving an amount of 100,000 rubles, in the contract you can see the loan amount of 120,000.
It’s just that the policy costs these 20,000, and interest will accrue on this money.
When applying for a mortgage, the cost of insurance is always paid separately; it is not included in the body of the loan.
If we consider what credit insurance gives, then this is not an empty service. She can really help in a situation where there are difficulties with payment.
The main types of policies sold are protection of life and health and in case of job loss. If such a case occurs, the insurer covers the loan.
There is also insurance against non-payment of a loan, but this usually applies to large and mortgage loans.
So, the service is not useless. Yes, in practice there are few insured events, but everyone can face such a situation without expecting it. Therefore, not always a categorical refusal is correct. It is better to analyze the situation. If the loan is small or short, you can refuse. But if the loan is small or long-term, it makes sense to think about buying a policy.
Life and health insurance
This is the most common type of insurance services offered by banks. If you take out a loan, it will definitely be offered to you. Or they may not offer it, but simply include it in the loan by default, but this is another question.
Let’s start with the fact that each bank works with certain insurance companies, so there is no single standard for providing services. Depending on the bank, the list of insured events, the procedure for indemnification, the amount of insurance premiums and payments may differ.
Studying what loan insurance is in terms of life and health, consider the proposal of Sberbank. All other lenders offer roughly the same conditions. Insured events:
- the death of the borrower;
- receiving disability of 1 and 2 groups;
- complete loss of ability to work;
- temporary disability.
In product descriptions, banks always superficially describe possible insured events. Therefore, it is better to immediately ask the manager to let you read the document of the insurance company itself, where everything will be spelled out in detail. For example, in the case of Sberbank, insured events are fully described as follows:
The term “Temporary incapacity for work” is also not entirely clear when reading, so also see its description separately in the contract with the insurer. Sberbank says the following:
Life insurance billing
It may be different for every bank. Some raise the fee, others make it more or less acceptable. Under classic insurance that protects the life and health of the client, Sberbank sets a fee of 2.4% per year of the loan amount. With an extended list of insured events – 3.6% (more often managers connect exactly the extended option).
For example, if you take a loan of 100,000 rubles for 5 years, insurance at a rate of 3.6% per year will cost 18,000 rubles. This amount is included in the loan, increasing its amount.
How much can you get using the example of Sberbank:
- the death of the borrower, the receipt of disability of the 1st group, the disability of the 2nd group due to an accident – 100% of the sum insured;
- disability group 2 due to illness – 50% of the sum insured;
- temporary disability. 0.5% per day of the sum insured, but not more than 2,000 rubles per day. Moreover, the days are considered only after the 32nd day of being on sick leave. The maximum payment is accrued for 122 days.
Bank loan insurance leads to a significant increase in its cost, so many people want to refuse this service, which is understandable. Bank rates are really high.
Job loss insurance
Many banks offer borrowers to buy policies that will protect them in case of job loss. Most often they are called “from job loss”, but many clients interpret the name incorrectly. They assume that even if they just quit themselves, this will be an insured event. But it’s not.
The list of insured events indicates situations in which a person loses his job due to circumstances beyond his control. Such cases are indicated by default. leading to loss of employment:
- liquidation of the organization;
- the borrower has been officially laid off;
- the borrower needs to be transferred to another position for health reasons, but the employer cannot do this;
- the employer intends to transfer the employee to work in another area, but the latter is not satisfied with this;
- change of ownership of the organization;
- recognition of an employee as incapable of working, etc.
All insured events must be documented, the only way to count on receiving compensation.
Why do you need credit insurance?
Is it necessary to take out insurance when getting a loan from a bank? What happens if you refuse? What does credit insurance provide and what does it protect against? How to choose and arrange profitable insurance? We answer these and other questions briefly and clearly.
Is it necessary to take out credit insurance?
By law, life and health insurance is voluntary. It is illegal to demand insurance under the threat of refusing to issue a consumer loan. At the same time, the bank has the right to raise the interest rate for an uninsured borrower, because the risks of issuing such a loan are growing.
Carefully read the loan agreement and compare the final cost of the loan with and without insurance. Often a loan with insurance is more expensive, but the difference is not significant. Please note that insurance, in contrast to the increased interest, gives you additional benefits. The insolvency of an uninsured borrower will shift the burden of debt to his loved ones.
And with insurance, you can count on financial support from the insurance company.
What risks are included in the loan insurance?
There are different programs of insurance when applying for a loan. Most of them include the risk of passing away or assigning a disability of group I or II. But in addition to this, there may be other risks that affect the solvency of the borrower:
- Diagnosis of a serious illness in a borrower.
- Hospitalization.
- Loss of work (The conditions under which the loss of work is recognized as an insured event are specified in the insurance contract. Most often, this is a reduction in staff or liquidation of the organization, but not dismissal of one’s own free will).
- Injuries.
At Raiffeisen Life, credit insurance includes the risk of job loss for employed borrowers.
However, if an employer or other unemployed person (such as a retiree) has taken out the insurance, this risk is replaced by the risk of injury.
At the risk of losing a job, Raiffeisen Life provides the borrower with monthly payments to help him meet his obligations to the bank.
The more risks, the higher the cost of insurance. In order for insurance to cover a wide range of risks, but be beneficial for the borrower, Raiffeisen Life reduces the tariff with an increase in the insurance period.
Terms of insurance in the loan agreement
Any life and health insurance provides for exceptions and limitations. So, you will not be insured in the presence of dangerous chronic diseases, disabilities, mental disorders. Standard credit insurance for the military and people with dangerous professions will not work.
In addition, there are situations in which an event is not recognized as an insured event. These include, for example, injuries and injuries sustained while under the influence of alcohol or drugs, as a result of driving without a license, or as a result of other illegal acts. Read more about this in our article on getting an insurance payment.
What is not an insured event?
Exceptions to insured events are the same for most insurers.
These include, for example, damage to health due to the use of alcohol or drugs, driving a vehicle without a license, or committing unlawful acts by the insured person.
If the disability or death of the insured is due to an illness that he suffered before the conclusion of the contract, the event is also not recognized as an insured event.
A complete list of risks and exclusions is always included in the insurance contract, you should read it before signing the documents.
What happens to insurance in case of early termination of the loan?
If you closed the loan ahead of schedule and during this time there was no insured event, two options are possible.
- You remain protected until the end of the loan period specified in your agreement with the bank. In this case, the sum insured will be equal to the original loan amount. For any of the risks listed in your insurance contract, an insurance payment is expected. If an insured event occurs, you will receive it.
- You close the insurance contract. If an insured event has not occurred up to this point, you can return part of the paid insurance premiums. The amount of the refunded amount depends on how long the insurance contract was valid.
If you decide that you need a loan with insurance, you will have to refinance the existing one and enter into a new loan agreement already with insurance.