Applying for a loan 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 obtain a loan, but few of them know that it is necessary to subscribe to an insurance to guarantee the loan.
Highlighting this concept often misunderstood by borrowers due to the additional costs it incurs.
Why is it necessary to plan for insurance when signing a credit contract?
Insurance is a guarantee for the heirs or relatives of the borrower in case of death or disability of the latter. Thus, no one will be obliged to repay the loan if something unfortunate happens to the person responsible for the payment.
Moreover, thanks to the “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 settle a loan, the financial intermediary is protected in case of default.
Is the insurance a separate contract from the credit?
The companies managing the insurance and those granting the loans constitute two different and independent sets of companies. Consequently, the contract certifying the obtaining of a loan and the one certifying the addition of the insurance are two completely separate agreements.
Is it possible to take out a credit contract without insurance?
It should be noted that insurance is optional and that no legal obligation forces you to accept these additional costs. However, banks all seek this guarantee and it will therefore be difficult for you to bypass this measure if you wish to acquire a loan.
How is the cost of insurance calculated?
Of course, the price of insurance varies according to the borrowed capital. Other factors are also taken into account when determining the amount of this guarantee. Among the most important, we find the age as well as the health condition of the borrower. Not to mention the duration of the contract, which plays an important role in the final calculation.
How is the insurance premium paid?
Two possibilities are now available to you if you choose to add insurance to your credit.
- On one hand, this payment can be made directly and by means of a single transfer. No amount is therefore deducted 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.