Mortgage insurance are policies that intervene in the event of any unforeseen events, with the company undertaking to pay the loan stipulated for the purchase of a property. The insurance protects both the lender and the borrower in the repayment of the financed amount.
These are guarantees that are not always compulsory to subscribe: the legislation on the matter clarifies that no credit institution can link the disbursement of the loan to the subscription of an insurance .
The mortgage policy can be taken out by both new borrowers and those who already own a mortgage. The necessary conditions for accessing the insurance are that the policyholder is resident in Italy and is between 18 and 70 years of age.
We remind you that the contractor is not bound to take out mortgage insurance with the bank that provides the loan . ISVAP Regulation 40 in fact established that the applicant has the right to decide which policy to choose from among all those on the insurance market. Alternative insurances are offered by intermediaries or consultants outside the bank, who are part of insurance companies or insurance brokers.
The mortgage insurance premium
As regards the methods of payment of the mortgage insurance premium , it can take place both in a single solution, before the repayment plan of the loan sum starts, or divided within each of the monthly installments of the loan, even if in the latter case it must be borne in mind that interest may be applied. The cost of mortgage insurance averages around 5% of the total loan disbursed , with peaks that can even exceed 12%. In this regard, IVASS, the Insurance Supervisory Institute, has the task of controlling the rates applied by insurance companies, thus preventing them from reaching particularly high percentages.
In the event of early repayment of the loan, the insurance company will return the unused portion of the premium, as required by the IVASS regulation.
The fire and explosion policy
It is the only compulsory insurance to take out. This policy is intended to protect the property placed as collateral for the loan against numerous events, such as fire, explosion, lightning and explosions (for example, caused by a gas leak).
In the event that one of these events occurs, the policy will intervene to protect the bank through a reimbursement that will be equal to the cost of rebuilding the property on which the loan is paid or its commercial value, thus extinguishing the debt burden on the borrower.
The duration of the fire and explosion policy coincides with that of the loan agreement . In most cases, the insurance is issued by the same bank that grants the loan, thanks to an affiliated insurance company: even in this case, however, the holder can turn to another company that offers better conditions.
The optional mortgage policies
The reference goes to the classic life policies or to those generally defined as CPI , Credit Protection Insurance, and mainly consist of contracts aimed at covering the repayment of the loan in certain cases, such as disability, loss of employment or accidents of the policy holder.
The insurance company could ask the insured to undergo preliminary examinations: these are medical checks and questionnaires that are used by the same company to accurately assess the risk status of the person to be insured.
In most cases, the optional mortgage insurance has a duration equal to the number of years in which the mortgage will be paid . Based on the event guaranteed by the clause, the method of disbursement of the sum by the company may also change: full settlement of the debt for death or permanent disability or compensation equal to the monthly installments still due in case of temporary disability or job loss.
Choice of optional mortgage policy: here’s what to watch out for
It is important to take into account the guarantees given . Often, those who take out a mortgage policy are convinced that they are guaranteed at the same time by disability, death and loss of employment: this is an erroneous belief and the main cause of the refusal of compensation by insurance companies. It is also worth pointing out that almost all the policies on the market do not provide for the possibility of changing the combination of guarantees.
Another factor to take into consideration is that the mortgage insurance provides exclusion clauses , such as the non-repayment of the loan installments due to death caused by willful misconduct of the policyholder, insured or beneficiary or caused by suicide which occurred in the first 2 years from effective date of the policy.