Home life insurance: which coverage to choose

Do you need to get life insurance for your home loan, but have questions about coverage? Then you are reading the right article.

To help you hire the protection solution best suited to your needs and those of your family, we have created a mini-guide with the answers to the most frequently asked questions about life insurance related to home mortgages (coverage included).

Is life insurance associated with home loans mandatory?

No. However, banks require this insurance to grant mortgage loans. And why? It is a way to guarantee the payment, total or partial, of the residual capital in the event of death or disability of the insured person.

Why is it important to remove this protection?

In the event of death or disability of the insured, the house will be paid for in full or in part, preserving the family’s financial balance.

Furthermore, if on the date of the insured’s death the amount of the insured capital is greater than the amount owed to the bank, the insurer pays the difference to the beneficiaries indicated in the insurance or, failing that, to the legitimate heirs. In case of disability, the remaining amount after the insurer has indemnified the bank is handed over to the insured person. Confused? Let’s look at an example.

If the amount of the insured capital is 200 thousand euros and the amount of capital owed to the bank is 150 thousand euros, the insurer pays 150 thousand euros to the bank and the remaining 50 thousand euros to the beneficiaries, in the event of death, or to the insured, in the event of disability.

How does safe capital work?

In life insurance policies linked to housing credit, the insured capital is indicated by the policyholder (person who takes out the insurance and who is generally also insured), corresponding to the amount of housing credit granted by the bank.

Now, in most cases, the amount of the initially contracted insured capital is not automatically updated throughout the duration of the contract, to keep up with the amount of capital owed to the bank, which decreases, month after month, with the payment of the mortgage installments. Result? For the entire duration of the contract, the amount of the insured capital is higher than the amount of capital owed to the bank.

This situation has advantages and disadvantages. On the one hand, in the event of death or disability, the insurer, in addition to reimbursing the bank the residual amount of the mortgage loan, also pays compensation to the beneficiaries or the insured for the amount of the difference (see example in the previous question). On the other hand, this implies a higher value of the premium than one would expect (the higher the sum insured, the higher the value of the premium).

However, the policyholder can communicate, annually, the amount owed to the bank, for the purpose of updating the amount of the insured capital, so that there is correspondence between these two amounts, or even choose an insurance with automatic updating of the insured capital, depending on the capital owed to the bank.

What types of contracting insured capital exist?

In life insurance associated with real estate credit, there are two options available regarding the contracted capital guarantee, when underwritten by two insureds, i.e. 100% or 50% debt capital guarantee (when the bank allows it).

In the 100% option, in the event of an accident, the amount of the residual capital is paid, in the 50% option only half of the residual capital is compensated. We always recommend the first option (100%), since in the event of an accident it completely eliminates the burden of this benefit on the second insured person. The same does not apply to the 50% option.

When the policy has only one insured, only the option of 100% of the sum insured is available.

What does it cover?

The most common life insurance coverage associated with home loans is as follows:

Primary coverage

> Death.

Additional coverage

> Absolute and Definitive Disability (IAD);
> Permanent Disability for Compatible Profession or Activity 60% or 65% (IDPAC 60% or 65%) due to illness or injury, previously known as Total and Permanent Disability (ITP) coverage.

Optional additional coverage

> Serious Illnesses (prosecutable in case of diagnosis of one of the 16 Serious Illnesses).

What does Death cover consist of?

This is the primary coverage in mortgage-related life insurance. In the event of the death of the insured or one of the insured (if the insurance includes two insured), the insurer guarantees the payment of the insured capital to the beneficiaries or legal heirs.

What does Absolute and Definitive Disability (IAD) coverage consist of?

It is the basic disability coverage required by banks and is the cheapest. To be activated you need to meet many requirements, which makes it more restrictive.

It provides for the payment of the insured capital in the event of disability of the insured, when this situation arises from illness or accident and the following conditions are met, simultaneously and cumulatively:

> Total and definitive inability to carry out paid work;
> Permanent dependence on a third person to carry out basic daily activities (eating, dressing and undressing, washing and moving around the house);
> Degree of disability equal to or greater than 85%, according to the «National Table of disabilities due to accidents at work and occupational diseases» officially in force at the time of recognition of the disability.

In other words, this coverage can only be activated if the insured has a very serious disability.

What does Permanent Disability coverage for Compatible Profession or Activity 60% or 65% (IDPAC 60% or 65%) consist of?

It is the most comprehensive disability coverage of mortgage life insurance and is therefore more expensive.

It guarantees the payment of the insured capital in the event of disability of the insured, when this situation results from illness or accident and the following conditions are met, simultaneously and cumulatively:

> Total and definitive inability to carry out paid work, or any other remunerated activity according to one’s knowledge and skills;
> Degree of disability of 60% or 65%, depending on the option contracted, according to the «National Table of Disabilities Due to Accidents at Work and Occupational Diseases» officially in force at the time of recognition of the disability.

Usage:In the Vida Crédito Casa insurance, by Generali Tranquilidade, starting from the age of 67, and up to a maximum limit of 75 years, the IDPAC coverage is replaced by IAD.

What is the difference between the two disability covers?

The main difference lies in the degree of disability of the insured. In IAD coverage the degree of disability must be very high (starting from 85%), to the point that the insured needs the help of another person to carry out all his basic activities.

If the degree of incapacity only prevents the carrying out of professional activity, the coverage cannot be activated and the insured and his family will continue to have to bear the cost of the mortgage loan.

IDPAC coverage can be activated if the insured has a degree of disability equal to 60% or 65% and is unable to carry out his professional activity or other remunerated activity according to his knowledge and skills.

How is disability recognized?

IAD and IDPAC are recognized by the insurer’s doctor, based on objective medical criteria, and this recognition prevails over any opinion or decision of the Social Security, the Caixa Geral de Aposentações or any other optional or mandatory scheme that replaces or complements them.

What coverage do banks require?

Generally, banks require death coverage and disability coverage. However, depending on the risk, they may require more comprehensive coverage, such as IDPAC.

Is it possible to choose other coverages?

YES. If the coverage requested by the bank is IAD, the insured can opt for broader protection (IDPAC). You can also purchase Serious Illness coverage, which guarantees the payment of the contracted insurance capital if the insured person suffers from a serious illness, such as stroke, cancer, Alzheimer’s, Parkinson’s, myocardial infarction, kidney failure, among others.

Insurers offer various coverage packages, with different levels of protection. Crédito Casa life insurance, from Generali Tranquilidade, for example, has five options:

> He killed them;
> Death and IDPAC 60%;
> Death, IDPAC 60% and serious illnesses;
> Death and IDPAC 65%;
> Death, IDPAC 65% and serious illnesses.

Furthermore, the last four options also provide the complementary coverage of the Premium Payment Exemption which, for Temporary Absolute Disability, Involuntary Unemployment or Hospitalization, guarantees the reimbursement of the fraction of the insurance premium, during the period in which this situation persists.

Are there any exclusions?

YES. All covers include a list of exclusions, i.e. situations in which insurers are not responsible for paying the contracted insured sum. They can be consulted in the General Conditions of the insurance.

Is it possible to change the life insurance associated with the home loan to another insurer?

YES. You can transfer the life insurance associated with your home loan to another insurer and you can also change its terms, as long as they meet the bank’s minimum requirements.

If you’ve made it this far, you’re already well informed about life insurance coverage associated with home loans. Now all you have to do is choose the protection that best suits you and your family. The mediators at Generali Tranquilidade will be able to advise you in this choice.