Requesting a loan to finance various products and activities such as a car, a wedding or a trip is a fairly common practice in our society today. Many people get a loan, but few know that insurance is necessary to secure the loan .
This concept is often misunderstood by borrowers because of the additional costs it generates.
Why is it necessary to provide insurance during a credit agreement?
The insurance is a guarantee for the heirs or for the relatives of the borrower in the event of death or disability in the latter. Thus, no person will be in the obligation to repay the loan if misfortune arrives at the person responsible for payment.
In addition, 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 the event of default.
Is insurance a separate contract from credit?
The companies managing insurance and those granting 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 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 to accept these additional costs. However, the banks are all looking for 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?
Obviously, the price of insurance varies according to 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?
You now have two options if you choose to add insurance to your credit.
- On the one hand, this payment can be made directly and by means of a single transfer. No amount is therefore taken 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.