Outstanding balance insurance: not mandatory... but almost!

Outstanding balance insurance: not mandatory… but almost!

1. What is balance insurance still due?

Outstanding balance insurance is a kind of life insurance that is taken out when you conclude a mortgage loan. This prevents your heirs -your partner or your children – from having to continue repaying the loan if you decide before the end of the loan repayment. Welding insurance remaining due reimburses the outstanding amount of the loan, in whole or in part according to the formula you have chosen (see point 4).

2. Is balance insurance still due mandatory?

No, the law does not require you to take out this insurance, but banks usually require it when you conclude a housing loan. Indeed, for the bank, a balance remaining due insurance is a solid guarantee: if you die, it will receive the amount that you still have to repay.

What about an isolated one? It all depends on whether there are children or not. If there is none, mortgage insurance remaining due is not very useful in itself, since in the event of premature death, the bank will be able to sell the house. On the other hand, whoever has children has an interest in insuring the loan at 100%.

3. Is it necessary to conclude the mortgage loan and the outstanding balance insurance with the same bank?

No, but when you take out the remaining balance due insurance at the banking institution where you conclude the loan, you benefit from a discount on the interest rate on the loan. This reduction varies from bank to bank. Most often, this is a few tens of basis points, which is not insignificant since the lower your rates, the less you will have to ultimately repay to the bank.

Nevertheless, it may be more interesting to take out your outstanding balance insurance with another actor than the one you are borrowing from. The same goes for your fire insurance, which also allows you to get a reduction in the interest rate on your credit if you take it out with the same actor. If you prefer to turn to an insured person, you pass on the discount in question, which will increase your monthly repayments. On the other hand, you have the possibility to compare the offers of the various insured parties and choose the cheapest one to compensate for the slightly higher rate.

4. Is it necessary to insure 100% of the borrowed amount?

This is not mandatory, but insuring the borrowed capital at 100% is obviously ideal. In this way, the loan is fully repaid if you or your partner dies before the end of your loan.

You can also choose to insure half of the loan each. This allows the surviving partner to no longer has to repay only half of the loan. It is also possible to consider insuring the part of the loan that corresponds to everyone’s share of household income. Thus, a partner who earns more will ensure a greater part of the credit than one who has a lower income.

5. How is the premium for the outstanding balance insurance fixed?

The premium level of the outstanding balance insurance depends in particular on the age, the capital to be insured, the duration of the loan, and the interest rate. The older you are, the higher the premium will be. But the state of health plays an equal role (read point 8).

It is cheaper to pay a balance remaining due insurance at once, but the premium can be in the thousands of euros.

The premium also varies from one insured person to another. There are also different payment formulas, which influence the final invoice: you can pay the premium at once or via periodic payments, for example, every year, every quarter, or every month, and this for the entire duration of the loan or for the first two-thirds of its term. The cheapest option is to pay the sum at once, but it can cost several thousand euros. Finally, be aware that you are liable for a 1.1% tax on the insurance premium.

There are also formulas on the market where the premium changes depending on the principal you repay: it is a little lower at the beginning of the contract but increases later.

Ask your insurer to present you with the different formulas (and their cost), so that you can gauge the price differences over the total duration of the credit and thus make your decision with full knowledge of the facts.

6. Can the insurance premium be reviewed?

“If you have a guaranteed rate, a revision of the premium is completely impossible,” says Pierre De Smet Van Damme, from the outstanding balance insurance specialist Cardif (BNP Paribas group). “If the rate is not guaranteed, a revision is possible in theory, but this only applies to the entire portfolio – and allowing the authorization of the public authorities – and not for a single policy.”So it’s not like with car insurance, where the premium can be changed on an individual basis, for example, if you are crazy about driving. “But in practice, the risk of this happening is almost zero,” says Pierre De Smet Van Damme.

7. Why does the insurer ask if we smoke?

Insurance is what is called a random contract. In the case of outstanding balance insurance, the insurer must estimate the level of risk that you (or your partner) will decide during the loan period, which will force him to repay the insured amount. Your health therefore clearly plays a role in estimating this risk. Hence the question of whether you smoke or not.

Insurance Guide

But it is not only this aspect that intervenes. You will also have to answer different medical questions. Some claim to work directly with a detailed medical questionnaire, others ask some initial questions and decide based on the answers whether to fill out a more complete questionnaire or not. If the insurer finds a high health risk, it can come back with other questions. In exceptional cases – depending on the age of the candidate to be insured or if the amounts to be insured are high – it is possible that the insured person may request to undergo a medical examination.

8. What happens if we are not completely honest when completing the medical form?

False statements can lead to the invalidity of the contract. If, for example, you have had a serious illness, you will have to mention it. Because voluntarily cutting elements or not reporting them correctly can lead to a resolution of the policy by the insurer.

In the past, those who had survived a serious illness, such as cancer, sometimes had to pay thousands of euros more for outstanding balance insurance. Because the one who runs a higher risk of dying before the full repayment of the mortgage loan must pay a surcharge. However, surprises can no longer exceed 1.25 times the basic premium. In addition, a new law provides additional guarantees for the one who has been cured of cancer for some time. For contracts concluded from February 1, 2020, your cancer-fighting past will no longer be able to be taken into account for the calculation of the health risk after a period of ten years.

9. What if the insurer refuses to grant outstanding balance insurance?

In the worst case, when an insurer finds that the (health) risk is too high, it may refuse to grant the outstanding balance insurance. “If this happens and the insurance has to be concluded in order to cover a loan for your residential home, you can turn to the Office of Pricing Monitoring for a review of your file,” says Wauthier Robijns, spokesman for the Australia sectoral federation.

10. Is outstanding mortgage insurance recommended for the purchase of a second residence?

Such a policy is of less interest in this case. Of course, the mortgage loan for the second residence will always have to be repaid in the event of death before maturity, but a second residence is not your residential home. If your apartment by the sea has to be sold to repay the loan, your partner (and possibly your children) will always have a roof over their heads.

11. Is welding insurance still due deductible?

Outstanding balance insurance premiums may be taken into account for a tax reduction. But think twice before deciphering them…