Many banks, when applying for a loan, offer customers to sign a voluntary accident insurance agreement. Such a service should help a person if he cannot repay a debt due to disease, injury or job loss. But more often the borrower only gets extra problems when arranging an insurance. In this article, you will learn about how loan national gap insurance works.
Why do you need loan insurance?
Any bank wants its borrower to repay the loan money in full and on time. To do this, the client must confirm and maintain a solvency for a long time.
The borrower’s solvency can be threatened by a variety of phenomena – from a severe disease to the loss of a job. The bank is interested in reducing these risks. One way to do this is by insuring the borrower. Insurance is issued during the signing of the loan agreement. The bank offers the borrower to conclude an agreement with an insurance company. It can be a separate partner organization or a bank unit. An insurance policy is issued for the entire loan term. During this time, the borrower will be required to pay insurance premiums – usually a rate of the amount owed.
In the event of an insured case, the borrower or his representative contacts the insurance company and reports the incident. If the insured event is confirmed, then the company guarantees payment of compensation to the bank account. So the bank returns its money, and the borrower closes the debt without problems for himself and his credit history.
Types of loan insurance
Insurance programs that are issued upon receipt of a loan are divided into compulsory and voluntary. The former are always included in the loan terms, and you cannot refuse them. The latter are signed separately from the main contract at the request of the borrower. Compulsory insurance is imposed only when applying for secured loans, including car loans and mortgages. Here, the property that you mortgage or buy on credit is subject to insurance. A car or an apartment must be protected from accidents – otherwise both the bank and the borrower may be at a loss.
Health and life insurance. It begins to work if the borrower loses his ability to work due to a severe illness or disability, as well as at his death. Then the insurance company pays off his debt in full. Average cost – up to 1.5% of the debt.
Job loss insurance. In this case, the insurance company will pay off the amount or part of the debt if you lose your job. This will help you get rid of debt or get a grace period to look for a new job. An important term is that a simple dismissal of one’s own free will is not an insured case. You can get paid only when the employing company has carried out a massive layoff or has ceased to exist. Usually, insurance costs up to 0.5% of the loan amount.
Title insurance for a mortgage loan. In this case, the borrower’s ownership of the property is subject to insurance. Such insurance protects against the loss of this right – for example, in the case of a double sale of a home. Unlike real estate insurance, this service is optional. It costs up to 0.7% of the amount.
Bank card insurance. It is usually only offered with a credit or debit card. If you lose it, the bank will start an emergency re-issue of the card and give you a small amount in cash. Such insurance is most often only valid abroad. The money that the bank will give you will need to be returned. Voluntary insurance when applying for loans is not regulated by separate laws.
How to opt out of insurance?
In most cases, the insurance service is not beneficial to the borrower. But the bank seeks to impose on the client the insurance he does not need in order to receive extra payments and reduce its risks. Most often, the bank increases interest rates or decreases the loan amount. Also, organizations do not give loans without insurance – they refuse without explanation.