If it is not mandatory, borrower insurance is often a guarantee requested by lenders (banks) when applying for a loan. It is therefore essential to obtain a mortgage. The lending institution “will almost systematically require the borrower to take out insurance” underlines the insurance site of the Banque de France. In particular “against the risks of death and total and irreversible loss of autonomy in the event of rental investment; against the risks of death, total and irreversible loss of autonomy, invalidity and incapacity for work, or even loss of employment in the event of the acquisition of a principal residence”.
A major reform took place in February 2022: Parliament adopted a law allowing you to terminate your borrower insurance at any time and no longer on the anniversary date, free of charge. This change, which should come into effect on June 1, 2022 for new contracts and September 1 for others, should allow more transparent access to the borrower insurance market.
In addition, the medical questionnaire is removed for home loans of less than 200,000 euros per person, or 400,000 euros for a couple.
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This insurance guarantees the bank the payment of monthly loan installments, therefore the repayment of the capital loaned to it, in the event of death, long hospitalization or disability. Banks require such insurance because they take the risk of not being reimbursed in the event that the borrower becomes insolvent. Thus, in the event of failure to repay the credit installments by the borrower, the bank will be compensated by the insurance.
The mandatory basic guarantee, whether for the main residence or a rental investment, is the death guarantee. In the event of the death of the borrower, the insurance will settle the outstanding capital linked to the loan, on the day of the death of the lender, regardless of the cause of death and subject to the exclusions of the guarantee in the contract. But it is subject to a guarantee age limit, making the risk of death not necessarily covered until the end of the loan.
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Three cumulative conditions are in play for the total and irreversible loss of autonomy. The lender must be permanently unable to engage in any remunerated activity that could provide him with earnings or profit. He must also be obliged to have recourse to the assistance of a third person for the acts of everyday life: washing, dressing, eating, moving around. Last point, he must not have reached the age limit provided for in the contract, generally 60 or 65 years old or the retirement age.
This disability results from an accident or illness after consolidation of the lender’s state of health. The contract provides that the insured is either totally unfit for the exercise of an activity that can provide gains and profits, or totally unfit for the exercise of the activity carried out on the day of the loss. In most cases, the total permanent disability guarantee is only possible if the insured has a disability rate of at least 66%. This rate is assessed according to a medical scale mentioned in the insurance contract.
We speak of partial permanent disability if, following an accident or illness, the lender is unable to carry out any activity that could provide him with earnings and profits. Either the lender is partially unfit for the exercise of the activity he exercised on the day of the claim. Most often, the guarantee of partial permanent disability is only possible for a degree of incapacity at least equal to 33 % and less than 66%. Please note that partial permanent disability cover can only be taken out in addition to total permanent disability cover and is not offered by all policies.