When you borrow money, your mortgage lender requires you to pay a borrower insurance in order to guarantee the repayment of the amounts loaned in the event of default. This insurance is essential to obtain your loan.
However, since 2010, you are not obliged to contract it with your banker. In fact, you can choose a borrower insurance that is not connected to your bank.
The question that arises is: what is the difference between bank insurance and individual insurance? Which one of the two to choose?
We will explain this to you below.
Bank insurance (group insurance)
Bank insurance, also called group insurance, is the insurance contract offered by the bank that allows you to take out a mortgage.
You can therefore borrow and take out the borrower insurance related to this loan at the same place, namely with your bank which has negotiated a partnership with an insurer on behalf of its customers in advance.
In other words, if you take out the contract with the lender, in the event of a claim, these insurance subsidiaries will take over your reimbursement.
These insurance contracts mutualize the risks presented by all borrowers, namely: health, professional or sports.
Thus, low-risk borrowers compensate risky borrowers and all the bank’s customers pay a similar contribution.
However, many borrowers are unaware that it is not mandatory to choose this type of contract. Indeed, as its name suggests, this group insurance is not very personalized and therefore not necessarily at the best rate.
In addition, the insurance should in no case charge you a fee if you wish to sign a group insurance contract with another bank.
Advantages :
- For borrowers with high risks, group insurance is attractive. Indeed, the amount of insurance contributions being mutualized, the insurance premium is therefore lower than if they had chosen individual insurance.
Disadvantages:
- Young and healthy borrowers will pay more for a group contract than an individual contract
- For lack of information, for the sake of convenience and speed, some borrowers take out their mortgage and insurance in the same place.
However, it is just as quick and even cheaper to compare and buy individual insurance.
- The guarantees that constitute borrower insurance are the same for all customers, that is to say that you cannot modulate them according to your particular case.
Cost of mortgage group insurance
The cost of insurance is expressed as a percentage, it is: Taux Annuel Effectif d’ Assurance (TAEA).
Banks are required to communicate the periodic cost as well as the total amount over the full term of the loan.
Individual insurance
Individual insurance, also called external insurance or delegation of insurance, is insurance that you choose at the beginning or during your loan, from brokers and insurers without having to go through your bank.
Delegation of insurance is the act of making sure with an insurer than the one offered by the credit institution.
Where to take out external mortgage loan insurance?
There is a wide range of insurance choices including:
- Independent insurers: there are many on the market. It can be large groups as well as small companies. They offer their contracts in delegation of insurance.
- Real estate insurance brokers: they support you through the process by guiding you to find the best insurer for your mortgage.
In addition, they offer you advices and simulators to be able to compare contracts with each other in a few clicks.
Note: online brokers are free. In fact, they are paid by the insurers: in the event of validation with the future borrower, they will receive a percentage from the insurer.
Advantages:
- Individual insurance rates are cheaper than group insurance because you can capitalize on competition
- The contracts are personalized according to each profile: you can therefore add additional guarantees and to your needs
- It is easier to change short-term borrower insurance with delegation of insurance than with group insurance.
Disadvantages:
- The clauses of the chosen insurance must offer a level of guarantee equivalent to those of the group insurance contract offered by the bank.
Indeed, your bank must validate the equivalence of guarantees and verify the chosen insurance contract to be able to validate it.
What is the cost of individual insurance ?
– The cost of insurance is expressed as a percentage : it is an Annual Effective Insurance Rate, called in French: ‘Taux Annuel Effectif de l’Assurance (TAEA)’.
Banks are required to disclose the periodic cost as well as the total amount over the full term of the loan.
– Application fees and membership fees : these fees may be invoiced at the time of membership and they cost between € 20 and € 30. They are specified on the quotes.
Comparison of group borrower insurance vs individual borrower insurance
| Individual borrower insurance | Group borrower insurance | |
| Type of contract | Tailor made contract | The contract is identical for all borrowers and the risks are mutualized, |
| Calculation of contributions | They are calculated on the outstanding capital and according to your age and your situation. | They are calculated on the initial capital |
| Evolution of contributions | Due to the fact that the outstanding capital due gradually decrease, the amount of contribution is degressive.
Contribution cannot be changed due to your personal situation and particularly your age. |
They can be revised all along the duration of the loan, based on the overall cost of claims declared by all the borrowers. |
| Taxes | Deduction of loan interest possible under certain conditions | |
| Suitable solution if… | You are young and in good health. This solution will be less expensive. | When you are more at risk than the average, this solution might be most advantageous. |
To conclude, the choice of your loan insurance depends on your profile. It is advisable to get quotes and to call on experts to choose the most suitable solution for you.