Compulsory insurance for mortgage loans seeks to protect the insured if, due to some unforeseen event contemplated in the policy, they cannot continue making the payment of their installments. Some of these insurances are required by law. Others, despite not being contemplated by law, maybe part of the policy of the financial entity to grant credit. Next, we will tell you more details about the mandatory insurance for mortgage loans.
In this context, you will find:
- How does mortgage loan insurance work?
- What are the compulsory insurances for mortgage loans?
- Other insurance to protect your credit
- Is it mandatory to take out insurance for mortgage loans with the bank?
How does mortgage loan insurance work?
Mortgage loan insurance is a solution designed to protect you from natural risks or in the event of facing unforeseen circumstances that prevent you from paying off your mortgage debt with the financial institution.
Some of these situations are related to the person acquiring the credit, such as death, permanent disability, or loss of employment. Other concerns are associated with the property’s damage in events such as earthquakes, fires, and water damage, among others.
What are the compulsory insurances for mortgage loans?
Under article 101 of the Financial Statute of Colombia, real estate that has been mortgaged to guarantee a loan must be insured against the risks of fire and earthquake. This must be for its commercial value and during the entire term of the credit.
In this sense, it is mandatory to have home insurance when acquiring a mortgage loan or a residential lease with a financial institution. This insurance will cover the debt you have pending with the bank if the property suffers accidental, sudden, and unforeseen damage due to fire or earthquake.
Other coverage is typically included in addition to elemental fire and earthquake coverage, such as explosion, hurricane, aircraft crash, water damage, and others. Coverage varies depending on the insurance company and the plan you choose.
Other insurance to protect your credit
In addition to home insurance for debtors, companies have designed different insurances to protect your assets and that of your family when acquiring a debt. Some of these insurances are required by credit institutions to grant credit. Meet them below:
Debtor life insurance
Debtor life insurance is part of the compulsory insurance for mortgage loans. It is a protection mechanism that consists of the fact that if for any reason or circumstance, the insured dies or suffers a total and permanent disability for any reason or event, the insurance company will assume the payment of the outstanding loan debt. The value of this insurance depends mainly on the insured person’s age and the balance of the debt.
It may seem that this type of insurance is beneficial only to the bank. However, it must be taken into account that the debt falls on the legal heirs in the event of death or failure to pay the installments. Therefore, with debtor life insurance, you guarantee the settlement of the obligation, avoiding leaving debts to your heirs.
Unemployment insurance
Another mandatory insurance for mortgage loans that your financial institution may require is unemployment insurance. In case of temporary incapacity or unemployment of the insured, the insurance company will comply with the debtor’s obligations to the bank.
Is it mandatory to take out insurance for mortgage loans with the bank?
The bank or financial institution with which you want to acquire the credit may require you to contract different insurances as a condition for granting the credit. And although, as we mentioned earlier, the only insurance required by law to acquire a mortgage loan is fire and earthquake insurance, the bank may have an internal policy that requires the contracting of other insurance.
The above is valid. However, the bank cannot force you to take out insurance with them. Each person is free to seek better conditions and prices with other insurers. This is to the extent that the level of coverage provided by different insurance is equivalent to that of the bank.
As for advice, we can tell you that if you are looking for economic or broader coverage for your credit insurance, you should consider different options. Hiring insurance with the bank can be much more expensive than hiring your intermediary.
