- Purpose of the Insurance
- Payment Method
- Distribution of Capital
- Fiscal Perspective
- Rate and Request for Quotation
DEFINITION OF CREDIT-LIFE INSURANCE
This is a “life” insurance or more precisely a temporary decreasing term insurance in the event of death. The insured capital corresponds to the loan balance that is found in the amortization table.
* It is temporary since its term normally coincides with the life of the loan to which it is linked.
* It is a (straightforward) death insurance: if the insured dies while the contract is still running, a determined lump sum is paid to the beneficiary of the policy. If the insured is alive at expiry, no lump sum is paid.
* A decreasing capital is insured. The insurance is combined with a loan, the capital of which is amortized over its life. It insures the outstanding capital balance owing to the creditor at every stage of the loan. It is therefore of utmost importance that the effective date be correctly communicated.
PURPOSE OF CREDIT-LIFE INSURANCE
It is generally used as personal cover for the borrower-insured’s close family (spouse, children, parents etc.). Should the insured die during the life of the loan, the insurance company will pay a lump sum corresponding to the loan balance.
Should the insured person die, the insured lump sum will be paid by the insurer to the person designated as beneficiary on the policy — very often the spouse, children or other blood relatives of the insured person.
However, one can also directly designate the lending company, which will therefore have additional security with regard to the outstanding loan.
CREDIT-LIFE INSURANCE PAYMENT METHOD
There are several possible ways for the insured to pay this insurance:
– pay a single premium at the beginning of the contract to cover the entire loan period
– pay several successive and variable annual premiums over the whole life of the loan
– pay the several annual premiums due – in principle – over two thirds of the insured period (3 years for a 5-year cover, 6 years for a 10-year cover, 10 years for a 15-year cover, 13 years for a 20-year cover, 16 years for a 25-year cover and 20 years for a 30-year cover)
DISTRIBUTION OF INSURED CAPITAL
The distribution of insured capital must be carefully determined when a borrowing is made by 2 or more people.
For maximum security, it would be ideal for each partner to take out insurance covering the whole capital amount borrowed; if one of the partners dies, the company will reimburse the entire balance to the “bank”.
Another possibility is to determine the sums insured according to each partner’s income: amount – job sector and stability etc. It is up to each one of them to weigh up the risks and determine the security they would like.
Taking out a credit-life insurance is not always necessary when taking out a mortgage, but some lenders will only grant a loan unless such a contract is signed.
Premiums paid for credit-life insurance can also be considered for reducing taxes on home or long-term savings.
RATES AND REQUEST FOR QUOTATION
With credit-life insurance, one must:
- Always compare the total cost over the term — in fact, we notice that some organizations only mention in their quotations the first-year risk premium (premiums then increase and are payable over the entire life of the loan instead of over only 2/3!).
- Also be careful as with certain insurers, rates are not guaranteed to stay fixed over the entire life of the loan — we then speak of experience ratings as premiums can vary after 3 years according to changes in mortality tables and/or the insurer’s financial results.
VDV Conseil undertakes to seek the best terms among the different plans and solutions. To receive a proposal for credit-life insurance in the event of death, all you need to do is request a quotation.
Credit-Life Insurance in the Event of Death
Guaranteed rate over the entire life or experience rating guaranteed for 3 years?
Premiums spread over the whole life or single premium?
VDV Conseil undertakes to explain the differences to you and seek the best terms