The annual cancellation of the borrower insurance will allow to change its contract but also the quota and its distribution in order to be covered at best with respect to its situation.
The annual termination for all at 1 January 2018
Next year, the annual cancellation of the borrower insurance will extend to all mortgages. Indeed, on 1 January 2018, all borrowers will be free to change their insurance policy on each anniversary date. Currently only contracts issued after 1 March 2017 benefit from this development. This is an evolution because it gives borrowers the right to change insurers each year provided that the new guarantees are at least equivalent to those of the contract left. This advantage is combined with the provisions of the Hamon law which allows the change of insurance only during the first year of the mortgage. The annual cancellation therefore takes over and completes the 2017 consumption law.
As a rule, alternative insurance contracts are cheaper than group contracts offered by banks. This difference can be double. Using insurance delegation or a subsequent change is therefore synonymous with real savings for borrowers. Knowing that loan insurance represents up to one third of the total cost of real estate financing, thousands of euros are at stake.
Adapt loan coverage to borrowers’ incomes
In addition to the gain on the insurance, changing the contract is also an opportunity to revise the new conditions including the quota. It corresponds to the share of the insured capital. For each mortgage loan, the bank requires that the borrower insurance portion be at least 100%.
For a single borrower, the required quota will be 100%. In other words, in the event of the death or disability of the borrower, the insurer undertakes to assume the full amount of the outstanding capital. In the case of two co-borrowers, the quota may be divided between 50/50, 60/40, 70/30 or any other distribution if the 100% is respected. To avoid any eventuality, two borrowers can each insure at 100%, we speak of coverage to 200% which is the maximum allowed. The amount of the quota has an impact on the amount of the monthly insurance. When changing loan insurance for co-borrowers, it is possible to review the quota or its distribution.
Get the best borrower coverage
For the bank, the only imperative is 100% compliance. In the case of a quota increase (with a limit of 200%), the insurance company should not oppose it since it can increase its contributions. In the case of a reduction of the shares (floor of 100%), the new insurer should not, in theory, not oppose it since it is a new clientele. This last argument can also be put forward when looking for the best loan insurance contract.