9. Mortgage Protection Insurance
It is a requirement of all French mortgage lenders that anyone taking out a mortgage must also take out a mortgage protection insurance policy, even if you have existing life insurance in place.
The policy will provide insurance cover against the mortgage in the event of death, permanent invalidity and temporary incapacity to work.
The cost of the insurance will be influenced by age and health and, although an insurance company may refuse cover, this is only likely if you have a serious illness.
It is more often the case that the premium on the insurance is increased to cover the higher risk, albeit to a level that you might not consider to be affordable.
All applicants are normally required to complete a medical questionnaire, and may be asked to undertake a medical examination, although some lenders waive this rule for existing clients and on certain other conditions, eg maximum loan, principal residence.
It is important the questionnaire is completed accurately and honestly failing which cover may be later refused where there is a claim associated with a condition that was not previously disclosed.
Since 2022 the government has abolished the medical questionnaire for certain applicants, as well as a 'right for forget' for certain cured illnesses. You can read more at Reform of Mortgage Loans.
The cost of insurance is around 0.5% of the loan, depending on age and health, although those with a major illness can expect to pay a lot more.
You are likely to be asked by the lender to take out an insurance policy offered by them. There is no obligation to do so, but if you choose another policy the requirements of the policy cannot be inferior to that offered by the mortgage lender. As part of the reform of mortgage loans introduced in 2022 it is also now possible to terminate a policy at any time. More on the link above.
Comparisons between policies are not always easy, so you would need to spend time trying to read the small print of any policy.
The method of calculating the insurance cover will have an influence on the monthly payments. Some insurance companies have a constant monthly premium over the term of the mortgage whilst others a higher premium in the early years, reducing as the loan is repaid.
Most policies will contain an excess clause (called a franchise), and the policy may not come into operation until few months after start of contract, and may only operate after three or six months of incapacity.
In the event of death the policy will pay off the mortgage, but not any arrears that may have been outstanding at the time of death. Some policies will exclude death by suicide, war or dangerous sports and some may have an upper age limit for eligibility.
In relation to permanent invalidity there may be exclusion clauses concerning alcoholism, abuse of medical prescriptions, refusal of medical assistance and personal aggravation of an existing invalidity.
Temporary incapacity has always presented a problem of interpretation and is often a source of litigation with lenders and insurance companies. Maternity is always excluded from incapacity cover, as is often the case for pathological problems, depression or back problems.
It is possible for borrowers to take out insurance covering loss of employment for reasons other than above but this is discretionary. There are large variations in the type of cover offered by these insurance policies, which are also generally expensive.
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