Taking out borrower insurance when buying back credits is not required by the Consumer Code, which governs this type of financial arrangement. In practice, however, lending organizations may condition their acceptance of financing on the provision of this protection. Particularly if the consolidation includes a mortgage, or if the total amount of consumer loans to be consolidated is high, the subscription is strongly recommended.
In addition, thanks to this security, the lender is more inclined to grant the requested financing, over a longer period and at a more advantageous rate.
What guarantees should be taken out?
The role of loan repurchase loan insurance is to protect the bank against the risk of non-payment, the insurer then taking over from the borrower. It also offers security to yourself as a subscriber, but also to your loved ones, by preventing them from inheriting your debts in the event of default on your part.
Therefore, it covers the vagaries of life that may temporarily or permanently prevent you from paying your repayments. These are mainly:
- the death,
- total and irreversible loss of autonomy,
- temporary incapacity,
- total permanent disability,
- and possibly job loss.
In addition to the credit grouping insurance, the lender can claim an additional guarantee intended to prevent the rejection of monthly payment due to a bank overdraft, over-indebtedness or personal bankruptcy … This guarantee can take the form of a surety provided by a mutual company or by a natural person, or a mortgage surety. In this case, the proceeds from the sale of the property concerned are used to pay the creditor.
Details for each type of cover
Certain guarantees are compulsory (death, total and irreversible loss of autonomy), others optional (unemployment).
If you disappear, your heirs do not have to reimburse the bank or leave the family home. The insurer balances the debt with the lending institution. It is compulsory for a mortgage or a loan of a significant amount.
Death and disability guarantee
Without being systematically compulsory, the death-disability guarantee covers the risk of death, but also situations that place you in a disability, preventing you from continuing to work normally and paying your monthly payments as agreed.
The lender requires that the contract cover at least 100% of the capital borrowed. If you have taken out the couple loan, the coverage can be 100%, divided 50/50 between the two spouses, or more than 100%, with full coverage for each. This formula is obviously more expensive, but in the event of the death of one of the co-borrowers, the entire principal remaining due is paid to the bank, thus protecting the survivor. It is also possible to opt for other distributions based on the income of each co-borrower; the other is then protected at best, without the additional cost on the premiums increasing the monthly payments too much.
The associated premium may be increased if your profile is considered by the insurer to present an aggravated risk. This is particularly the case when you suffer from a serious or chronic illness when you request your reunification.
Death, disability and temporary incapacity for work guarantee
In addition to the aforementioned risks, this guarantee covers you against any temporary incapacity to work, for example when an illness or accident requires long-term hospitalization.
Loss of employment guarantee
The insurer pays all or part of the monthly payments due during the unemployment period. This optional guarantee offered exclusively to employees is accompanied by a waiting period. Useless for civil servants, it can be of great help in the event of long-term inactivity. Furthermore, it does not apply in the event of dismissal for serious misconduct or resignation.
How to buy back credits?
In general, the bank or financial institution that agrees to restructure your debts offers you its own solution. However, this group contract is not advantageous for all borrower profiles. Also, thanks to the Lagarde law and the loan insurance delegation, you are free to take out individual protection adapted to your situation and your needs with the insurer of your choice.
To help you in this search, it is recommended to call on a broker specializing in loan buy-back insurance. This professional avoids you having to go around the market yourself to put all providers in competition.
It is he who selects among the offers of the main insurance groups and his independence allows him to develop tailor-made formulas. You thus benefit from the most attractive conditions (rates, guarantees, possible exclusions, deductible, etc.) in order to guarantee you good coverage at the best price.
The advisers are at your disposal both to find you the best restructuring offers and support you throughout their implementation, but also to negotiate options for you.
In all cases, the cost is integrated into the global financing offer and the single monthly payment in the same way as the other ancillary costs. In this way, no unpleasant surprises, and managing your budget remains simple.