Sunday, April 7, 2019

Mortgage Insurance

Mortgage insurance: features and requirements

Mortgage for many citizens is the only opportunity to buy their own homes. Therefore, people often turn to banks for processing such a loan. For this it is important to meet numerous requirements so only citizens who are solvent, responsible and have a good credit history can count on such a large loan. At the same time, banks additionally impose mortgage insurance. The purchase of an insurance policy for an object to be purchased is regulated by law, so it is impossible to refuse it. The acquisition of life insurance is usually imposed by banks, so if borrowers refuse to purchase such a policy, then they have to face high-interest rates.

The concept of mortgage insurance

Mortgage insurance is represented by special insurance that protects the lender from possible losses. They may arise if a borrower defaults or if other reasons arise that will not be able to recover funds from the debtor by selling real estate purchased through a mortgage.

Such insurance is considered protection against credit risks. It is realized with the help of insurance of the purchased object, title or the life and health of the home buyer. In this case, the lender is always the beneficiary, but the payer is only the borrower.

Who is developing the industry?

The state is mainly involved in the development of such an insurance product, since the Government is trying to improve conditions for citizens to receive mortgage loans. In foreign countries, buying insurance is considered a must for citizens, but in Russia many people have a negative attitude towards such expenses. At the same time, legislation is regularly amended regarding the rules for the purchase and use of insurance.

At the expense of mortgage insurance, you can protect the borrower from many negative consequences, so if for any reason he loses the purchased housing, the insurance company will have to return the mortgage.

Main types of insurance

When making a mortgage, the bank insists on buying various insurance policies. Only one of them is compulsory by law, so you need to buy insurance for the property you are buying. Other types of policies are not mandatory, so citizens can refuse to purchase them. This usually leads to the fact that the bank simply refuses to provide a loan or offers too high interest rates.

Mortgage insurance can be presented in several forms:

Insurance of purchased property. This policy is mandatory by law, as it provides protection against loss or damage to the collateral. If an insured event occurs, the funds for the loan are returned to the bank by the insurance company. The cost of mortgage insurance of this type depends on the price of the property itself. Usually, insurance companies charge from 0.16 to 0.5% of the value of the object. The price is affected by the likelihood of an insured event.

Life and health insurance. Such insurance covers the borrower's expenses if he is applying for a disability or has a disease that prevents him from continuing to work and receive money.

Additionally, it fully covers the entire mortgage loan if the debtor dies. In such circumstances, relatives will not have to take responsibility for payments. The conditions of such a policy may vary significantly in different companies. Compensation will not be paid if the citizen deprives himself of his life or has an accident while intoxicated. The price of such insurance depends on the remaining debt, and also varies from 0.3% to 1.5% of the amount. Additionally taken into account the age of the borrower and his health.

Title insurance. This policy is considered specific. On the basis of it, the costs associated with the loss of the borrower's right to the purchased object are covered. This variant of the insurance policy is usually used if an apartment is purchased which is located on the secondary market, therefore there is a possibility that a citizen will have to face scammers. The cost of the policy is in the range of 1.3 to 1.5% of the size of the mortgage loan.

Comprehensive. This policy is offered only a limited number of insurance companies. It provides protection against a large amount of insurance risks, and its value is much less than the purchase of several policies separately. Payment varies from 0.3 to 2 percent of the size of a mortgage loan.
The choice of a particular option depends on the borrower and the requirements of the banking institution.

Features of such insurance

The rules of mortgage insurance are significantly different from the rules that are used when buying a standard insurance policy. A special feature is that the beneficiary under the contract is not the client of the insurance company, but the credit institution that issued the funds for the purchase of residential real estate.

If an insured event specified in the contract occurs, the insurance company will pay compensation to the bank. The amount of the payment may not exceed the amount of outstanding debt.

You can buy a policy annually or for the entire loan period. The first option is considered the most acceptable, since under such conditions the financial burden on the payer will not be too high. Insurance payments for a mortgage by many borrowers are called the thirteenth payment, since their size is approximately equal to the payment on the loan.

Directly in the loan agreement prescribes the obligation of the borrower to insure the purchased property and their lives. If a citizen refuses to purchase these policies, then this may lead to an early termination of the agreement, an increase in interest rates or other negative consequences.

Can banks legally require the purchase of a policy?

The need to purchase insurance is determined by the provisions of the Federal Law No. 102, which indicates the need to insure the mortgaged property represented by the apartment or house being purchased. On the other types of insurance information is not available.

In Art. 935 GK states that personal insurance should always be voluntary, so banks do not have the right to insist on the purchase of such a policy. But most banking institutions require the purchase of personal mortgage insurance. If the borrower refuses to comply with these conditions, he faces various negative consequences:

  • refusal to provide a mortgage loan;
  • a significant increase in interest rates;
  • early termination of the loan agreement, if this condition is written in this document.

Some banks do require the purchase of title insurance, although customers may opt out of such insurance. Judicial practice shows that banks often win such cases, as they have the right to refuse to issue credit funds without substantiating the reason for such a decision.

What insurance claims are included?

The mortgage insurance contract can be concluded directly with a banking institution or an insurance company. Will have to choose a company accredited in the bank. Standard when buying insurance for an apartment to obtain a mortgage is required to insure the home from various insurance claims. These situations include:

  • a fire that causes damage to the insured property, even in a situation if it did not arise in the apartment, but outside;
  • different types of natural disasters;
  • gas explosion;
  • flooding caused by an accident in the water supply system, sewage system or heating system, even in a situation where water has entered the apartment from other residential premises;
  • the fixation of illegal acts committed by third parties, for example, robbery or vandalism;
  • falling on the apartment of various aircraft;
  • detection of defects in the building, and they should not be known at the time of the conclusion of the insurance contract.

Citizens who select the best insurance should remember that if a policy is bought with a minimum package of insurance claims and services, then compensation is paid only in a situation where the housing is actually caused significant damage. Therefore, it will not be possible to arrange insurance if the wallpaper is damaged as a result of flooding or the window is broken by the hooligans. Mortgage insurance allows you to avoid significant losses in case of property damage. Therefore, such insurance is required by law.

Life insurance claims

People need to prepare for significant expenses if they take out a mortgage loan. Life insurance is required by each bank, and if citizens refuse to issue such a policy, they usually face waivers or excessively high interest rates.

When purchasing such a policy, the insured person may receive compensation if the following insured events occur:

  • the death of a citizen resulting from an accident or illness that appeared after the purchase of insurance;
  • loss of working capacity, for which the first or second group of disability must be registered.

Other significant conditions for obtaining compensation are written directly into the contract drawn up with the insurance company.

Where to buy insurance?

Banks insist on buying a policy exclusively in accredited companies. Some large institutions offer their own insurance.

The most famous are insurance Sberbank, Alfa Bank and the company Sogaz. Each organization has its own conditions and requirements for the insured.

Many citizens prefer to draw up a mortgage in Sberbank, since this organization is considered large, reliable and offering favorable conditions. At the same time, the company draws up mortgage life insurance. Sberbank offers a policy on the property, the value of which should not be more than 15 million rubles.

To purchase the policy is paid 0.25% of the remaining debt. Therefore, Sberbank mortgage insurance will be cheaper every year.
Insurance in VTB
VTB offers the opportunity to purchase only comprehensive insurance. A contract is made for the entire term of the mortgage loan, but it requires renewing the certificate annually.

The cost of insurance is 1% of the size of the mortgage loan. The percentage is reduced annually if there are no problems with the repayment of the loan.

Many people buy a policy at AlfaStrakhovanie when they buy a mortgage from Alfa Bank. Mortgage insurance is offered under the following conditions:

  • the application can be submitted via the Internet;
  • the application is considered promptly;
  • each borrower has its own insurance cost, which depends on the mortgage debt;
  • It offers comprehensive insurance that covers the risks associated with the inability of the loan to be returned by the borrower for various reasons;
  • insurance of property, life of a citizen and title;
  • an agreement is concluded for the entire term of mortgage lending, and the agreement is terminated at the moment when the loan is fully repaid;
  • contributions are transferred annually.

If the borrower plans to pay off the mortgage ahead of schedule, he can count on recalculating the cost of insurance.

Quite often, people in order to purchase a policy turn to the insurance company Sogaz. Mortgage insurance is a sought-after offer of this organization. Risks are insured against the death of the borrower or disability. If a first or second disability group is issued by a citizen, the mortgage is paid off by the insurance company.

The cost of the policy depends on the balance of the debt, so you will have to contact the bank annually for the relevant certificate. The price is set within 1% of the outstanding balance. When buying a policy, each citizen can choose additional services that increase the cost of insurance, but this increases the number of insurance claims, upon occurrence of which compensation is paid by the company.

How is the contract drawn up?

Mortgage life insurance and apartments can be offered in one contract, but most often two agreements are required. For this, the following actions are performed:

  • select the appropriate insurance company;
  • the necessary documents are transmitted to the employee of the organization
  • the cost of insurance is calculated;
  • a citizen is studying the proposed contract;
  • if the parties agree to all the terms, an agreement is signed;
  • paid insurance policy.

It is necessary to renew the insurance annually, and if the citizen refuses this process, this may lead to an increase in the interest rate or early termination of the contract.


When you make a mortgage loan you have to face the need to purchase insurance for the apartment and the life of the borrower. Insured events may vary significantly between companies. Should choose an organization accredited in the bank, where it is planned to obtain a mortgage.

When choosing a company, not only the cost of insurance is taken into account, but also related services. Refusal of insurance can lead to numerous negative consequences for the borrower, for example, an increase in overpayment and interest rates, as well as often banks terminate the loan agreement and demand a refund.

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