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Is borrower’s insurance mandatory for taking out a loan?

Among the costs of real estate credit, borrower insurance can sometimes weigh heavily. Do we necessarily have to take it? If in the texts there is nothing to prevent taking out a home loan without it, the reality is quite different.

A 34.7% drop in the months of August and September compared to the same two months last year: times are tough for mortgage loan production. It is about the interest rate increase, but also for some borrowers (especially from the age of 50) very expensive loan insurance with sometimes the consequence of going over the usurious rate, the maximum interest that a bank can lend at.

This insurance can either be taken out with the lending bank (we are talking about a group contract) or with an alternative insurance company (often much cheaper).

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But is this borrower’s insurance compulsory? If the Banque de France remembers no provision of law requires a borrower to be insured, one thing is certain: very few banking institutions give credit without this famous sesame. Thus, according to Astrid Cousin, spokesperson for the insurance company Magnolia quoted by thing, 98% of outstanding loans in France have borrower insurance. No legal text makes it mandatory, but nothing obligates the bank to lend you money either, explains Milie Ruben, spokesperson for the insurance company Scurimut. So she can set additional conditions for obtaining the loan, and taking out insurance is generally one of them. A message confirmed by the website service-public.fr, which notes that it is from the moment you have obtained an approval from an insurance company that the bank will agree to give you a loan offer.

In fact, according to an analysis by the Prudential Control and Resolution Authority (ACPR) on housing finance in 2021, 91.4% of the loans are covered by the death insurance. In fact, the borrower’s insurance can cover the death of the insured (in almost 92% of cases therefore), the total and irreversible loss of autonomy (PTIA, approx. 85% of loans covered) and more rarely loss of employment (approx. 2%, again according to ACPR figures).

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Protection of the borrower and his family

Who are the borrowers who can do without insurance? These are, for example, large rental investors who already own several properties that they have finished repaying. If you have real estate for the same amount as the operation you want to finance, you can put it up as collateral, developer milie Ruben.

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But very often the banks ask for both: In addition to borrower’s insurance, the bank asks for another guarantee, which goes either through a guarantor organization or through a mortgage loan. Objectively speaking, a mortgage loan or a bond could be sufficient, assures Emilie Ruben. However, in the context of a mortgage that is not linked to borrowers’ insurance, the bank can seize your property to repay itself in the event of default, regardless of the reason for the latter. The borrower therefore risks losing his property, while the borrower’s insurance will allow him to keep it in the event of an accident in life.

As you will have understood if it blocks certain borrowers today, borrower insurance is above all security for the borrower, as well as for his family. In the event of death or total and irrevocable loss of autonomy for the borrower, the insurance company will compensate him for repayment of the capital within the limit of the insured part. Take the example of a couple who would have borrowed 200,000 euros with a quota of 50% per month. In the event that one of the two borrowers dies, the insurance company takes over and repays 50% of the remaining amount of the loan.

However, creditor insurance does not necessarily have to cost a fortune. Since September 1, 2022, thanks to the Lemoine law, it has been possible to change borrower insurance at any time without waiting for the anniversary of your contract and thus save money.

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