Borrower insurance: Choosing the right quotas


How to choose the right loaner insurance quotes (Photo credits: Adobe Stock – )

When taking out your borrower insurance, you will have to choose the distribution of the insured portions between the different co-borrowers. An essential choice to be well protected.

What are the insured quotas?

This is the part of the outstanding capital of your mortgage covered in the event of a claim by your borrower insurance. An insured portion is expressed as a percentage.

If you borrow alone, this quota is obligatorily 100%, that is to say that if at the time of the occurrence of the disaster, such as a death for example, the mortgage loan insurance will cover the entire capital remaining due according to the conditions set out in the contract.

Things get complicated if you borrow from more than one.

Let’s take the case of a couple who decides to buy their main residence together for 100,000 euros.

When taking out their loan insurance, they must choose how to distribute the insured portions between them, with the legal constraint that the addition of the two covers at least 100% and at most 200% of the credit.

For example, if borrower A is covered up to 60% and borrower B up to 40%, the addition of the two covers 100%. If borrower A is the victim of an accident that places him in a situation of disability, his home loan insurance will be activated according to the conditions provided for in the contract and will cover the reimbursement of 60% of the 100,000 euros, i.e. 60,000 euros .

Borrower B will have to continue to repay the outstanding capital, ie 40,000 euros.

How to distribute the insured portions?

To make the best possible choice, co-borrowers must take into account each other’s professional situation and income, and the financial impact if they suddenly had to take on the credit drafts alone: ​​would they be able to assume entirely alone? in part? or not at all.

  • In the case of a household with stable incomes and the same level, a quota distributed at 50%/50% may be sufficient. Concretely, for a home loan of 100,000 euros, in the event of default by one of the borrowers, the insurance company will cover 50% of the mortgage, or 50,000 euros. The surviving co-borrower must continue to repay the remaining 50,000 euros.

  • In the case where there are major disparities in income or professional stability, it may be appropriate for the borrower with the highest income to be the best covered, in order to protect his co-borrower in the event of a claim. We can then apply a differentiated quota such as for example a distribution of 60-%40%, 70%-30%, etc. In the example of a mortgage of 100,000 euros and a quota

  • For maximum protection, the co-borrowers can decide to be each covered up to 100%, for a total insurance of 200%. This means, for example, that in the event of the death of one of the borrowers, the remaining mortgage will be fully reimbursed by the insurance company.

The type of investment also influences the distribution of the insured portions: the issues are not the same for a main residence – which must be preserved as well as possible to protect the whole family – for a secondary residence – which could possibly be resold in the event of a hard blow – or even for a rental investment – ​​which, if the project is well balanced, is intended to be financed via the rents collected, and to require only a minimum savings effort from the borrowers.

Choosing the distribution of the insured portions requires planning over several years, and considering that something serious could happen to your co-borrower, which is never easy.

As a result, this step is too often neglected at the time of subscription, even though it is an essential strategic choice: it is the relevance of this distribution that guarantees each of the borrowers to be well protected. if something serious happened to his partner.

At the same time, the more comprehensive the coverage, the higher the monthly payments will be, with a significant financial impact on the cost of the entire real estate project.

It is therefore necessary to take the time to reflect in order to take into account all the parameters and to arbitrate in the most objective way possible.

Stephanne Coignard ([email protected])

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