Thousands of Russians are confused about whether life insurance is necessary for a car loan, let’s look into the issue

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25.02.2020

Mortgage is a long-term housing loan for the purchase of housing secured by real estate. As a rule, banks lend for large amounts. At the same time, it is impossible to predict whether the borrower will make payments on time. For a bank, a mortgage, in fact, is not a risky type of lending, since the issued loan can be repaid through the sale of collateral. But along with this, the terms of lending include insurance obligations, in particular life insurance. Usually, it is not mandatory, but it provides additional security for the transaction both for the bank (in insurance cases, the insurance company is the guarantor of payments) and for the borrower himself, covering a number of risks. When applying for a mortgage, we also offer comprehensive insurance products.

What is included in mortgage insurance

Typically, lenders work with accredited insurance companies, captive firms, that insure:

1. Real estate - compulsory insurance provided for by the Mortgage Law. The policy guarantees the lender the repayment of the loan in the event of a deterioration in the financial condition of the borrower or loss/damage to the collateral. The object of protection is an apartment, house, land plot. Standard risks include fires, natural disasters, water supply system failures, theft, household gas explosions. The property should not be in disrepair, dilapidated (physical wear and tear - no more than 70%), unfinished or under a ban (arrest, bail, legal disputes). The policy period coincides with the loan repayment period (or is extended every 1-3 years). The insured amount covers the full value of the property or the balance of the mortgage debt (in case of refinancing). The amount of payments depends on the policy of the insurance company and the package of services (set of insured events). The beneficiary is the creditor to whom the insurance company pays compensation for damage upon the occurrence of an insured event.
2. Title - protection against the risk of losing ownership of property if the court declares the purchase and sale transaction invalid or the previous owners of the property are incompetent. Title insurance is voluntary. It is used when purchasing housing in new buildings, on the secondary market, it helps the lender and borrower to avoid financial losses in situations related to fraud. The cost of insurance depends on the actual price of the property, the number of transactions carried out with it, and the policy term (from one to 10 years).
3. Civil liability for damage caused to the life/health/property of third parties during the operation of collateral real estate. Advantages of insurance - save money when an insured event occurs, no need to waste time on legal proceedings. Beneficiaries are third parties to whom the insurance company transfers compensation. If the property is rented and the damage is caused by the tenants, there will be no refund. Tariffs - 0.3-0.7% of the property value.
4. Life/health of the borrower. Insurance companies offer life insurance with a fixed or variable rate. The insured amount is usually equal to the loan debt and decreases along with it, or may be higher, but not more than 10%. The SG agreement is concluded for 1 year with annual renewal.

Often insurance companies offer comprehensive insurance for mortgages, which includes all types of mortgage insurance - real estate, title, life, liability. This packaged product reduces the financial impact of damages and losses resulting from multiple events.

What are the benefits of mortgage life insurance?

LC is the most significant expense that a borrower faces when applying for a mortgage. Payment amounts for the year range from 7-18 thousand rubles. At the same time, the greater the risk of illness and death of the borrower, the higher the tariff. But life insurance gives the borrower good bonuses:

• Increasing the likelihood of issuing a mortgage loan;
• Low interest rates (without personal insurance, the bank increases the interest rate for using a loan by 1-2 points);
• In case of temporary disability, it is easier to reach an agreement with the lender - to refinance the loan or revise the repayment schedule;
• If an insured event occurs, the insurance company will pay the debts, the family budget will not suffer;
• If the borrower becomes ill, treatment and recovery will be paid for by the insurance company.

The lower the amount of mortgage debt, the lower the insurance payment. In case of early repayment of the loan, the insurance company returns part of the paid contributions to the insured person (if there are no restrictions in the contract). In addition, insurers are interested in attracting customers, so they often offer promotions that allow them to reduce premiums by 0.5-0.8%.

Insurance is issued to the recipient of the mortgage loan, co-borrowers, guarantors and other persons specified in the mortgage agreement. Each company approves a list of persons whose lives cannot be insured:

• Under 18 years old, over 55-60 years old;
• Registered in narcology, psychoneurological, anti-tuberculosis dispensaries and other specialized medical institutions;
• Having suffered a stroke, heart attack;
• With serious diseases (oncology, diabetes, liver cirrhosis, heart disease, AIDS, HIV and other diseases).

There are insurers who do not refuse to enter into a contract for such persons, but increase the rate due to the riskiness of the insurance.

The life insurance program of the insurance company may include the risk of harm due to emergency situations, involuntary loss of work (reduction in the number of employees, liquidation of the company).

Registration of the contract

Data on the amount, loan term, existing diagnoses, facts of visiting a doctor, hospitalization are usually asked to be indicated in the client’s questionnaire. With personal insurance, the insurance company is interested in the client’s profession, his lifestyle (activity, extreme sports, etc.). Such data influences the assessment of insurance risks and tariffs. The client submits an insurance application, a copy of his passport, SNILS, and mortgage agreement. If the questionnaire indicates serious, chronic diseases, the IC may need a medical report on the person’s health status (or medical record). All conditions of the life insurance contract are specified in the contract, which must be read carefully and pay attention to important points.

List of mortgage insurance cases

Standard insurance cases, which are most often prescribed in a contract for the safety of life and health:

• Disability of groups I-II - the amount of coverage (fully, partially) is prescribed in the contract;
• Temporary loss of ability to work (for a period of no more than 30 days) - compensation of debt, in proportion to the time spent on sick leave;
• Death - the insurance company fully repays the debt; after the encumbrance on the property is removed, the relatives become the heirs of the deceased.

It is worth studying the terms of the contract as carefully as possible. Clear wording eliminates discrepancies and possible disputes and guarantees payment of compensation.

In what cases will there be no compensation?

In most cases, compensation will not occur if:

• The borrower is registered at the dispensary and has been diagnosed with HIV or AIDS;
• There was a suicide;
• Injury or death while under the influence of drugs or alcohol;
• If a person lost his life/health while driving a car without having a license;
• The insured event occurred during the commission of a crime, which was proven by the court.

Important! If a citizen received a disability, was paid compensation, and then died, then there will be no death benefits. If you concealed the presence of an occupational or general disease when filling out an insurance application form, the insurance company will also refuse payments.

Amount of insurance premium and calculation of monthly payments

The insured amount is usually equal to the loan debt. Tariff - 0.17-1% of the insured amount. Conditions that increase the coefficient:

• The age of the policyholder - the older, the higher the rate;
• Lifestyle - dangerous profession, dangerous place of residence, extreme sports and other factors;
• Having a chronic, serious illness.

If the client’s health condition worsens during the policy period, the insurance premium may be reduced (the reason is that the real health condition was hidden).

Franchise type

Franchise is part of the damage in the form of a percentage or a fixed amount that the client reimburses at his own expense. The type and size are determined by agreement of the parties. There are mainly 2 types of deductibles used in insurance:

• Conditional - when the amount of damage is equal to or less than the deductible, compensation is not paid and vice versa, the amount of damage exceeds the deductible, the insurance compensation is paid in full;
• Unconditional - the client receives the difference between the amount of loss and the amount of the deductible.

The advantages of a franchise are savings due to lower insurance premiums, discounts on the purchase of a policy, and it is beneficial for large amounts of damage.

Conditions for payment of compensation

A mortgage has its own peculiarities of recognizing an event as an insurance event. For example, regarding the risk of “death,” the relatives of the deceased must notify the insurance company before the expiration of the policy, but no later than a year from the date of the event. Disability - during the insurance period, but no later than 6 months after its expiration. Temporary disability - after 30 days of continuous sick leave. After recognizing the event as an insurance company, the insurance company repays the bank the entire amount of the insured person’s debt. Compensation for the risk of loss of ability to work is made for each day of loss of ability to work in the amount of 1/30 of the mortgage payment.

Payment documents:

• Statement;
• Certificates from a medical institution confirming the fact of the insured event (certificate of death, disability status indicating the cause, sick leave);
• Documents for the right of inheritance from relatives (upon death);
• A certificate from the bank about the amount of mortgage debt (with details for transferring compensation).

Important! Until the money is transferred to the lender, you must continue to pay the mortgage according to schedule, since the insurance company does not compensate for fees and penalties for late loan payments.

Early termination of the contract

The cooling-off period is 5-14 days, during which the insured person can terminate the insurance early (without giving reasons) and receive back all the money paid (if the insured event did not occur during this period).

If the cooling period is missed, then you can terminate the life insurance contract at any time during the term of the mortgage loan, since this is a voluntary type of insurance. The periods when the client can terminate the contract early, the amount of funds for return (25-75%) are established by the insurance company.

The procedure for terminating an insurance contract is regulated by the general rules of Art. 958 of the Civil Code of the Russian Federation, the Law “On the Protection of Consumer Rights”.

Amount to be refunded = the amount of the insurance premium paid minus the days that have passed from the date of conclusion of the contract to the day of termination minus income tax minus the cost of agency support services.

Responsibility for failure to fulfill obligations

The policyholder is responsible for providing false information on the insurance object. In this case, the insurer has the right to recover losses from the violator by offsetting the insurance payments made.

If the insured event occurs due to the fault of the insured person, the beneficiary, they are deprived of the opportunity to receive compensation. The absence of guilt is proven by the offender.

Liability for violation of the insurance contract is established by Art. 937 Civil Code of the Russian Federation.

Legislative norms

Art. 16 of the Law of the Russian Federation “On the Protection of Consumer Rights” directly prohibits linking the provision of some services with the provision of others.

However, you need to remember, Part 1 of Art. 821 of the Civil Code of the Russian Federation gives the lender the right not to issue a loan if there are circumstances confirming that the borrower will not pay on time.

The list of such circumstances is not specified by law - and therefore
the bank, in fact, can always refuse to issue a car loan without explanation.
The immediate reason for refusal, the client’s reluctance to enter into an insurance contract, cannot be - however, in practice, it is extremely difficult to prove that the bank did not issue a car loan only because of this.

How to refuse a manager and not insure life on a car loan? Read ►►

Frequently asked questions about mortgage insurance

What are the conditions for granting a military mortgage?

The state program of preferential lending to military personnel for the purchase of housing is regulated by Federal Law No. 117, which has been in force since the beginning of 2009. Loans are given to officers, enlisted personnel, and students of military educational institutions who have been participating in the NIS (savings and mortgage system) for at least 3 years. The loan term is no more than 25 years. Amount - up to 2.2 million rubles.

What to do for registration:

1. Apply for a certificate to Rosvoenipoteka;
2. Select real estate (in any region of the country) that meets the terms of the program and the bank’s criteria;
3. Collect documents that the lender needs;
4. Submit a loan application and wait for the bank’s decision.

The starting fee is at least 10% of the cost of the property. If the cost of real estate is higher than provided by the program, the borrower pays the remaining amount with his own money.

Life insurance is mandatory for military personnel (FZ-52 dated March 28, 1998). The bank has no right to require the military borrower to once again obtain life insurance for the mortgage.

Is it possible to transfer a mortgage to another person?

Re-registration may be required in case of divorce, loss of the borrower’s ability to work, relocation, or significant deterioration in financial situation. Replacement of the borrower is permitted only with the consent of the mortgagee, provided that the new debtor meets the lender's criteria in terms of income level, financial reputation, employment (confirmed by documents).

During the period of preparation and collection of documents and consideration of the application, the previous borrower continues to pay the loan in order to avoid delays. To renew the agreement, the creditor may require the new debtor to make an assessment of the collateral. Insurance (life, real estate, title) is issued to the new debtor.

Is it possible for a Russian citizen to get a mortgage abroad?

Can. Before the pandemic, Israel offered attractive conditions (3.5%). In Spain, you could choose a suitable interest rate system - fixed (4-5.5%), floating (minimum 2% per annum), mixed. The maximum loan period is 40 years.

Foreign banks issue long-term housing loans on the same terms as in Russia, the registration procedure and package of documents are approximately the same. The main difficulty in obtaining a loan is proving your solvency.

Mortgages are issued in euros, dollars or local currency, so citizens who receive income in rubles risk spending more money than they expected.

As for life insurance, rates abroad are 5-8 times lower than here, the protection is more thoughtful, for example, one policy protects both spouses for the risk of death.

Is the borrower required to take out life insurance when purchasing a car?

The practice of a bank providing a loan for the purchase of a car only on the condition that a life insurance contract has been concluded is widespread.
Loan officers who work with individuals often directly say that life insurance when taking out a car loan increases the likelihood of loan approval.

In the most egregious cases, life insurance is included in the loan agreement as a mandatory condition - and the client does not even know that he is paying not only for the services of the credit institution, but also for life insurance. How legal is this?

Life insurance itself for a car loan is not only an additional service from the bank (which, of course, is paid separately). This is also a guarantee for the credit institution.

Where can I get a car loan without insurance? Read ►►

In this case, the bank is confident that even if the borrower dies, the money will still be returned - if not at the expense of the heirs, then from the funds of the insurance company.

Insurance can also be beneficial to the borrower himself : if something happens to the heir, the car will remain in the family, and the insurance company will fulfill the debt obligations.
However, it is necessary to remember: although life insurance for a car loan can be a mutually beneficial service, it is not necessary.

This is evidenced by both the Civil Code of the Russian Federation and the Central Bank, which has achieved the right for the client to cancel the policy within 14 days from the date of conclusion.

That's why:

1. Life insurance is not a mandatory element when obtaining a car loan.
2. Refusal of insurance should not negatively affect loan approval.
3. Forcing someone to enter into an insurance contract is completely illegal.

What if the loan is under a government program?

In cases where a car loan is issued with state support, the following requirements apply:

1. Only cars whose manufacturers participate in the state program can be purchased. There is a list of models and manufacturers intended for use by credit institutions.
2. The cost of the car cannot exceed a certain limit established officially.
3. Repayment period – no more than 3 years.
4. The loan currency is Russian rubles only. Lending under the state program in foreign currency is unacceptable.

Thus, there are no requirements for compulsory life insurance by law , which means life insurance for a car loan under the state program is not mandatory.

But the requirement to insure the collateral, that is, CASCO in our case, is legal.

However, there are programs from banks and car manufacturers that offer loans with collateral, but without CASCO.