Hiring a mortgage loan is one of the most common ways to finance the purchase of a home. However, there are different aspects to consider before hiring, as is the issue of insurance. In this article we will know which insurances are mandatory when taking a mortgage loan and which ones can be hired additionally.
What insurance is required when taking a mortgage loan?
Following the incorporation of the new article 40 of the Insurance Law, introduced by Law No. 20,552 that Modernizes and Promotes the Competition of the Financial System, it is mandatory to contract two types of insurance when a mortgage loan is taken: the lien insurance and fire insurance. We see its characteristics, below:
- Lien insurance:
- The lien insurance allows, in the event of natural or accidental death of the insured person, to grant or eliminate the outstanding debt with the creditor of the mortgage loan (bank).
- It is important to consider, in this insurance, the way in which it is calculated. Some companies readjust the value of the debt year after year, while others stipulate a fixed value for the total credit term.
- Experts recommend that its value be reduced as the years go by, reaching zero at the end of the last mortgage loan payment.
- Fire insurance:
- The purpose of fire insurance is to protect the value of the home in case of fire and total loss thereof. It also protects against minor damages, in which case the insurance company delivers the value of the damages to the bank and the latter delivers them to the owner to repair the property or cover the claim’s debt.
- Remember to review the coverage of this insurance contract, if there are special coverage, how it operates in case of total loss and if it is annual or if it should be renewed periodically.
You should keep in mind that:
- When contracting a mortgage loan, you have the right to have the mandatory fire and relief insurance properly informed, including all relevant information about coverage, conditions, restrictions and costs.
- In addition, you have the right to purchase these insurances from another insurance company other than the one proposed by the bank, provided that they meet the conditions required by the bank. Remember that here you can know which are the best insurance companies: Ranking insurance companies in Chile
What insurance can be hired in addition to the mortgage loan?
Apart from the previous insurances, it is also possible to contract additional insurances , if the mortgage loan holder so desires. The most common are: earthquake insurance, unemployment insurance and the most total and permanent disability insurance :
- Earthquake insurance: this is an additional and optional coverage to fire insurance, which aims to cover the material damages that the house may suffer as a result of an earthquake.
- Unemployment insurance : This insurance is intended to cover credit debts in the event of an eventual unemployment of the debtor or inability to work (involuntary unemployment). This insurance does not cover in case of resignation of the worker.
- Relief Insurance plus total and permanent disability : Protects the debtor in the payment of the credit against the risk of death or by declaration of total and permanent disability 2/3 of the insured, as a result of illness, accident or weakening of physical forces or intellectuals, during the term of the credit.
In conclusion, when taking out a mortgage loan, it is necessary to contract, for legal imperative, the insurance of fire and relief, being able to freely choose the entity with which you want to hire them. Additionally, if you need to cover other risks, you can also take out additional insurance such as unemployment or earthquake .