Comment choose the right quotas for your borrower insurance (Photo credits: Adobe Stock -)
At the time of taking out your borrower insurance, you will have to choose the distribution of the insured installments between the different co-borrowers. An essential choice to be well protected.
What are the insured quotas?
This is the portion of the remaining capital owed on your home loan covered in the event of a claim by your borrower insurance. An insured amount is expressed as a percentage.
If you borrow alone, this amount is mandatory 100%, ie care if at the time of the accident, such as a death, real estate loan insurance will cover all the remaining capital due according to the conditions set out in the contract.
Things get complicated if you borrow from several.
Let’s take the case of a couple who decide to buy their main residence together for an amount of 100,000 euros.
At the time of taking out their loan insurance, they must select how to distribute the insured installments among themselves, with for legal constraint that the addition of the two covers a minimum of 100% and a maximum of 200% of the credit.
For example, if borrower A is 60% covered and borrower B is 40% covered, the addition of both covers 100%. If the borrower is the victim of an accident that puts him in a situation of disability, his real estate loan insurance will be activated according to the conditions provided in the contract and will cover the repayment of 60% of the 100,000 euros, or 60,000 euros .
Borrower B will have to continue to repay the remaining principal amount, which is € 40,000.
How to distribute the insured quotas?
To make the best possible choice, co-borrowers must take into account the professional situation and income of each, and the financial impact if they suddenly had to take care of credit transactions alone: would they be able to take it all on your own? in part? or not at all.
In the case of a household with a stable income of the same level, a quota of 50% / 50% may be sufficient. Concretely, for a real estate loan of 100,000 euros, in case of default of one of the borrowers, the insurance company will cover 50% of the real estate loan, or 50,000 euros. The surviving co-borrower will have to continue to pay the remaining 50,000 euros.
In the event of high income disparities or job stability, it may be relevant for the borrower with the highest income to be the best covered, in order to protect their co-borrower in the event of a claim. You can then apply a different amount such as a distribution of 60-% 40%, 70% -30%, etc.
Maximum protection is provided, the co-emperors can decide to cover each one with a height of 100%, to be able to ensure a total of 200%. This means, for example, that in the event of the death of one of the borrowers, the remaining home loan will be repaid in full by the insurance company.
Type of investment also influences the distribution of insured quotas: the stakes are not the same for a main residence – which must be best preserved to protect the whole family – for a secondary residence – which could be possible resold in the event of a hard blow – or even for a rental investment – care if the project is well balanced in order to be financed through the rents received, and to require only a minimum savings effort of the borrowers.
Choosing the distribution of the insured quotas requires projecting over several years, and considering that something serious can reach its co-borrower, which is never easy.
As a result, this stage is too often neglected at the time of subscription, when it is an essential strategic choice: it is the relevance of this distribution that guarantees each of the borrowers to be well protected and some something serious was happening to his partner.
At the same time, the more complete the coverage, the higher the monthly payments, with a significant financial impact on the cost of the entire real estate project.
It is therefore necessary to take the time to reflect to take into account all the parameters and arbitrate in the most objective way possible.
Stéphanne Coignard ([email protected])