Am I required to take out insurance with the bank when I ask for a loan?

14 Dec

Banks cannot force any person or company to take out insurance when they sell other financial products, such as a mortgage. The only insurance whose contracting is mandatory is damage insurance, and, in any case, it is not necessary to contract it with the insurance company indicated by the bank, since an insurance signed with any other insurer is also valid, provided that it covers the value of appraisal of the property (excluding land value).

The current legislation does not impose the obligation to take out insurance in general and directly to the debtor of a mortgage loan and, in any case, the obligation will always be contractual and not legal.

Here are some basic guidelines about this issue

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Do you have a mortgage? And home or life insurance? Remember who sold it? Was it the bank? If so, you are very likely to think that the bank told you that you needed these insurances to give the mortgage or the loan a green light. It’s not like that. You were poorly informed by the financial institution.

A good part of the banking entities, if not the majority, include among their conditions when granting a mortgage loan the hiring of a series of insurances. In general, the number and class varies depending on the credit conditions, but the more favorable they are, the higher the number of financial products to be contracted is also usually. When we sign a mortgage it is usually linked to the hiring of some insurance, such as life insurance.

Contract insurance with banks when we ask for a loan

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If we request a loan from a bank, especially for a mortgage, the entity may improve its conditions in exchange for the contracting of life insurance. In this way, the entity will reduce the differential of the loan from the products that we are hiring (insurance usually payroll accounts or credit cards, etc.).

If a client asks the bank directly about their legal obligation, the banks are forced to explain that the insurance is optional, but that if they are not contracted, the interest rate of the loan will be increased.

If we take a look at the legislation, we have to make it clear that the hiring of such products is not mandatory by the client, but the bank may not want to grant us the loan if we do not sign before we also take out your home insurance (or life) so that most clients, without many other options, end up signing under the conditions set by the entity and, ultimately, having to pay in addition to a loan, life insurance.

Can they force you to take out life or damage insurance with the mortgage?

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As we have commented, when a mortgage is formalized, it is common for banks to offer additional products, not only banking (credit card, direct debit …), but also insurance.

With respect to life insurance or any other insurance suggested by the bank (for example, insurance to protect against interest rate rises or to cover possible defaults), it is not mandatory to contract them and, therefore, the client can refuse contracting of these coverages.

The entity suggested by the bank and with any other.

The only insurance whose contracting is mandatory is damage insurance and, in any case, it is not necessary to contract it with the insurance company indicated by the bank, an insurance signed with any other insurer is also valid, provided that it covers the appraisal value (excluding land value).

However, the reality is that many banks do require those people who want to request a loan that they also take out life insurance as a condition to give them the loan, so that for practical purposes it is as if contracting life insurance was mandatory To have the mortgage.

Within this scenario, all those people who are looking for a credit do have a small room for maneuver, which is to find for themselves the home or life insurance that is cheaper and allows them to save month by month.

Can I cancel my insurance once the mortgage has been granted?

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Yes. Insurance can be written off once the mortgage has been granted, but before doing so, look carefully at the fine print because canceling them can mean a significant increase in interest to be paid to the bank or any other stipulated penalty.

Is there any regulatory change planned for the future?

Yes. Directive 2014/17 / EU of the European Parliament and of the Council approved in 2014 regulates this issue and before March 21, 2016, Spanish regulations must adapt to it. This directive does not prohibit the combined sale of products, but urges that the right of applicants to choose a different insurance company can be exercised effectively.


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