You are currently viewing Buying real estate: What are the different types of insurance?

You can take out loans to buy a property. You need to prove to the bank your ability to repay the loan to be sure of getting the loans you need.

You should opt for job loss or death insurance. The same applies to disability insurance. These types of property insurance enable the insurer to reimburse the bank for the full amount of the loan if you find yourself in a situation where you are no longer able to repay your loan.

Is it useful to take out job loss insurance when buying a property?

There are several types of insurance that you need to have in order to buy a property. This is the case for job loss insurance. This is one of the insurances that are compulsory for the purchase of real estate.

You make a commitment to repay a loan in full. It is with the commitment that you will have the opportunity to prove your ability to make the repayment.

To ensure that the loan is repaid, you need to have a job. The organization responsible for lending you the money may ask you to take out insurance. This is called job loss insurance.

This type of underwriting enables the lender to avoid the risks associated with non-repayment. There may be several reasons for job loss. The insurer will reimburse all costs, whatever the cause of job loss.

The effect of this insurance begins as soon as you are made redundant. This type of insurance is crucial when buying a property. It gives the lender confidence that you will be repaid.

You never know when you're going to be laid off. That's why you need to do everything you can to convince your lender.

Is it necessary to take out death insurance before buying a property?

Several types of insurance are available for buying a property in your own name. Death insurance is one of the compulsory types of insurance needed to obtain financing. It is rare for a bank not to ask for such insurance before advancing you financing.

It's a way of ensuring that you'll be reimbursed if you lose your life.

The insurance company will be obliged to make the payment after the borrower's death. It will ensure repayment until the loan is paid off in full. By taking out death insurance, the borrower can be sure that his family will not make the repayments.

There's nothing better you can do for your family in such a situation. To avoid any problems, you need death insurance. The structure responsible for making the loan will give you the financing if you take out this insurance.

You should know that the insurer will reimburse all the remaining loan instalments in a specific case. You must be the sole borrower before your insurer will reimburse you.

If there are several borrowers, the insurer will reimburse in different ways. If all borrowers (2 or more) are 100% insured, the insurer will reimburse when :

  • Only one borrower has died;
  • Both subscribers are deceased.

If you take out 200% of the life insurance, the insurer will reimburse the remaining loan instalments in full. The 200% represents the total underwriting of both borrowers.

When the risk is spread across different borrowers, there is a variation in repayment terms. If the individual who died was insured at 40%, the insurer will not reimburse at 100%.

The insurer will reimburse 40%, as will the borrower. The 40% represents the rate insured on the entire loan amount. The other person, representing the co-borrower, may be insured for 60%.

The remaining installments must be paid by the second borrower. This must be set out in the loan contract signed beforehand. The family will not also be involved in this payment in the event of death.

You can opt for a distribution between 0 and 100%. This is possible when one of the policyholders is unemployed. This unemployed person can be insured at 0%.

This is a bad sign for the second subscriber. He or she will be obliged to repay all loan instalments. This obligation will take effect just after the death of the other, uninsured borrower.

In practice, this distribution is strongly discouraged in order to avoid making the entire repayment. There's another fact to bear in mind when choosing death insurance for a mortgage. This is the loan-to-value ratio.

It represents the rate at which any borrower will be covered by the insurer. This percentage is decided when the insurance contract is signed.

The determination of the percentage rate is not done randomly but by taking into account several criteria:

  • The professional situation of each borrower must be taken into account;
  • The loan-to-value ratio is also determined on the basis of the borrower's medical history;
  • If the borrowers decide to each have 100% coverage, the insurance premium will be expensive;
  • This insurance premium is added to the total loan repayments due.

It's important to know that if you're the only borrower, you can't choose a percentage. Insurance coverage in the event of death is indisputably 100%.

The need for disability insurance when buying real estate

If you want to take out a mortgage, a commitment to repay in full is essential. A physical inability to work should not prevent the bank from being repaid.

It's also the loss of mobility following an accident. This loss of mobility is impossible to predict. That's why it's essential to take out disability insurance.

This will prevent such an undesirable eventuality. This insurance gives you the option of repaying the total remaining capital when you become disabled. This is also the case when you are disabled.

The disability in question would have to prevent you from exercising your profession. This is the only possibility. This insurance protects both the bank and the borrower.

The bank is sure that the credit it has granted you will be repaid. It will take possession of its money even if the customer defaults. Disability insurance is essential when buying a property.

The importance of loan insurance when buying real estate

Lenders may require you to take out loan insurance. This insurance is necessary to cover all risks that could prevent you from repaying the loan.

The lending institution can offer insurance options to the borrower. The borrower is not obliged to choose what the credit institution wants. He or she can make his or her own choice, provided it meets the lending institution's criteria.

When the lending institution offers an insurance contract, it must communicate everything to the borrower. This applies to the terms of the contract and the procedures for exercising the type of insurance.

The mortgage insurance offered by the lending institution must be comprehensive.