Did you know that there are at least two home insurances that are required when applying for a home loan? This is the case with life insurance and multi-risk housing. Know how these products work and what their characteristics are.
Why is home insurance compulsory?
These insurances are required by financial institutions as collateral for home loan risk, as the amount financed in this type of loan is usually high and, as such, banks need to safeguard the amount they lend to consumers.
Home insurance can be done with the bank’s partner insurers or through any other insurance company.
However, contractual conditions are usually more advantageous if home insurance is provided with the insurer partner of the bank to which you will have the mortgage (because this may be linked to a premium spread).
The important thing to keep in mind is that you do not have to accept the conditions offered by the bank and can look for other options in the market. We suggest that you ask for a simulation with and without associated insurance to see if, in the face of insurance with a more attractive premium outside the financial institution, it pays you to opt for the spread bonus.
If you are still looking for a mortgage to buy your home, we suggest you compare the market solutions. This way – and just as you should for your home insurance – you can find the loan that best suits your needs.
Mortgage life insurance
One such home insurance, which is not required by law but is always required by banks, is the life insurance associated with the home loan.
This type of insurance is aimed at the loan holders and aims to protect both the same as the financial institution as it covers the outstanding amount of the credit in the event of death or disability.
In the event of a fatality, this insurance ensures that the house is paid and that the family members remain in possession of the house.
In the event of the death or invalidity of one of the mortgage holders, the insurance may be called. What happens in terms of the process is relatively simple: the premium insurance is transferred to the financial institution, the amount owed is paid (partially or fully) and the loan in question is canceled.
Thus, the purpose of home loan life insurance is to protect borrowers against the eventual death or invalidity of one of the holders.
There are some toppings to consider, the first three being the most common:
- Total and Permanent Disability (ITP);
- Absolute and Definitive Disability (IAD);
- Diagnosis of serious diseases;
- Death by disease, accident or traffic accident;
- Reimbursement of hospitalization expenses by accident.
Death coverage is the main one, but financial institutions usually require one of the other two. ITP is the most comprehensive and the homeowner must have a 60% or more disability for insurance to be triggered. The IAD is the most common to be presented by banks to customers and can only be activated in case of absolute disability of the holder.
If there are two holders in the loan, this type of insurance may be contracted in whole or in part. That is, a couple can contract, for example, 100% or 50% of insurance for each. If it is made 100% in the event of death or disability, the amount owed is paid in full by the insurer to the financial entity.
On the other hand, if the insurance is covered by 50% for each holder, in case of death or disability the debt is only paid at 50%, with the other holder having to pay the remaining part of the loan.
Therefore, being one of the homeowners insurance required by banks, you should consider 100% coverage. Although it represents a higher amount in your monthly budget, a higher coverage ensures greater security.
3. Safe capital
Insured capital is the amount paid by the insurance company when any of the coverage is triggered. This corresponds to the amount owed to the financial institution and, therefore, insurers must update the insured capital in accordance with the amortization made by the holders.
This means that the monthly installments you pay to the bank reduce the amount owed and, as such, this amount must be discounted into the insured capital.
The premium home life insurance is calculated on the basis of the insured capital, but its calculation also takes into account the age of the policyholders.
The older they are, the higher the premium will be because the risk increases. Still, the value of the premium decreases as policyholders write off the outstanding amount.
When you take out life insurance, you need to take a few steps.
First, policyholders will have to answer a medical questionnaire to certify their health. This questionnaire will be reviewed later and, depending on the answers, the insurance will be approved or rejected. Finally, a premium is set to apply.
In some cases it may even be necessary to have a medical appointment before insurance can be accepted.
Multi-Risk Home Insurance
Another of the compulsory home insurance is multi-risk home insurance, which is required by law for horizontal property fractions, and is required by financial institutions to obtain a home loan.
Consumers should consider the best multi-risk home insurance for them as it will protect their home and all their investment in it. As such, you should also review optional covers and consider what type of protection and covers you need.
When purchasing a property on horizontal property it is mandatory by law to have fire insurance. However, it is increasingly common for financial institutions to require more comprehensive underwriting insurance: multi-risk housing.
In fact, and in a way, these two home insurances complement each other. If the purpose of life insurance is to protect holders, multi-risk home insurance is intended to safeguard the home. Note that the more coverage you have on your multi-risk insurance, the more protected your home is.
In addition, multi-risk home insurance can be underwritten only for the building itself, housing filling or even both.
Coverages that are part of multi-risk home insurance depend on the different offers of the insurance company and such, it is important to analyze all market assumptions to know which product is best for you.
The most common covers are as follows:
- Damage caused by fire, flood and earthquake, lightning or explosion, or from storms, high winds or cyclones;
- Compensation for theft or theft;
- Electrical hazards (damage to electrical appliances caused by short circuit or overload);
- Esthetic damage to the facade of the dwelling building;
- Damages not from problems in water distribution and sewerage;
- Demolition and removal of debris;
- Temporary accommodation in case of temporary deprivation of the property;
- Liability for involuntary damage, such as falling objects on the porch of the house on people or vehicles;
- Protection against seismic events such as earthquakes, volcanic eruptions or tidal waves.
In the case of protection against seismic phenomena, it is very common for financial institutions to apply for this coverage in multi-risk home insurance.
This particular coverage has an impact on the premium insurance which varies depending on the risk of the location of the home. For example, a residence in one of the highest seismic risk areas (Azores, Tagus Valley, Vicentine Coast and Algarve) will typically have a higher premium than a house in the north of the country.
It is advisable to include this coverage in your multi-risk home insurance, as damage caused by a seismic phenomenon can lead to partial or even total loss of the property.
3. Safe Capital
When taking out multi-risk home insurance, please note that the amount to be insured is established based on the rebuilding value of the home.
The value of rebuilding the property is nothing more, nothing less than the amount the homeowner would have to pay in case of total destruction of the house.
You should then pay attention to the insured amount, as it is this amount that depends on the compensation you will receive if you trigger the insurance.
Normally, the value of reconstruction of the property is lower than the market value of housing, since in the former aspects such as land, proximity to services, location, infrastructure are not considered for valuation purposes. , the potential for sale of housing, among others.
It is important to keep updating your home’s capital on a regular basis, especially if you are doing any kind of home improvements or works, to be really aware of any damage that may occur.
When calculating the premium value of this home insurance it is necessary to take into consideration the value of the property and its risk.
In addition, several characteristics are considered for establishing the value and risk of housing, namely:
- Construction year;
- Type of construction and materials used;
- Accessibility conditions (the house must be easily accessible in case of fire);
- Fire-fighting facilities and theft protection systems;
- Among others.
For example, the higher and better the location conditions, the lower the annual insurance premium. On the other hand, if the conditions are not appealing, the prize may be increased.
Finally, the value of multi-risk insurance is still affected by the destination of the property, ie if we are talking about a house for permanent residence or if it is a second home. In the latter case the value of premium insurance will be higher.
Home insurance: how to choose?
There is no right answer as to what is the best life or multi-risk home insurance. The truth is that you must compare various solutions, not only from the financial institution, but also from insurance companies.
Review the coverage as well as the insured capital and the premium. Since coverage influences the amount you pay monthly, we suggest comparing similar coverage across insurance companies.