Applying for credit to finance various products and activities such as a car, a wedding or a trip is a fairly common practice in our current society. Many people are granted a loan but few of them know that it is necessary to take out insurance to guarantee the loan.
Highlighting this concept, often misunderstood by borrowers because of the additional costs it generates.
Why is it necessary to provide insurance in a credit contract?
Insurance is a guarantee for the heirs or relatives of the borrower in the event of death or disability of the latter. Thus, no person will be obliged to repay the loan if something bad happens to the person responsible for payment.
Furthermore, thanks to “outstanding balance” insurance, the bank granting the loan is protected when a repayment is not made. Therefore, if it is ever impossible for someone to fully pay off a loan, the financial intermediary is protected in the event of default.
Is insurance a separate contract from credit?
The companies managing insurance and those granting loans constitute two sets of different and independent companies. Consequently, the contract certifying the obtaining of a loan and the one certifying the addition of insurance are two completely separate agreements.
Is it possible to take out a credit contract without insurance?
Please note that insurance is optional and that there is no legal obligation forcing you to accept these additional costs. On the other hand, the banks are all looking for this guarantee and it will therefore be difficult for you to override this measure if you wish to acquire a loan.
How is the cost of insurance calculated?
Obviously, the price of insurance varies depending on the capital borrowed. Other factors are also taken into account when determining the amount of this guarantee. Among the most important, we find the age and the state of health of the borrower. Without forgetting the duration of the contract, playing an important role in the final calculation.
How is the insurance premium paid?
Two options are now available to you if you opt to add insurance to your credit.
- On the one hand, this payment can be made directly and using a single transfer. No amount is therefore removed from the initial cost of the loan.
- On the other hand, if you are unable to pay such an amount when the time comes, the cost will then be deducted from the original value of the loan when the money is transferred to your account.