Financial institutions charge for the study of debtor life insurance policies and all risks. Why do they do this? Is it legal for there to be costs for endorsing insurance on a mortgage loan?
In Colombia we are lucky to be able to choose who to buy debtor life insurance policy and all risk when we ask for a loan or a mortgage transfer. We have the alternative of taking the one that the bank offers or that of our trusted insurer.
Recently, a client chose to buy the policies from his insurance broker. They were a little cheaper than the bank. What was not expected is that the financial institution will charge you for the study and endorsement of mortgage credit insurance
Yes, I think he does. Let’s get to the root of the matter.What are the policies requested by the bank when granting a mortgage loan?
Financial institutions always ask you for two policies:
Debtors life insurance
There are several modalities of this policy, but the important thing is to understand why the bank asks for it.
Suppose you lend money to a couple well known to your family to buy a nice house. Each month, without fail, they pay the fee. One day, they let you know that the couple has had a serious accident. Apparently, they will not be able to return to work. You are happy because they are alive and then you wonder, how will you get your money back. True?
Debtor life insurance does exactly that:
it guarantees to the bank that in case of partial or permanent disability or death, the outstanding debt will be canceled, that is, the business will have the expected closing. If something serious and unexpected happens to one or all who acquired the credit, family members will not have to answer for the loan.
It is of substantial importance, don’t you think?
All risk insurance
When taking the credit, the financial institution will ask you for an all risk policy, insurance that covers real estate. You would also do the same if it were the case. I explain.
When granting the credit, the bank delivers the money and as a guarantee that you will pay the debt, mortgage the property. Of course, the bank needs your property to be in good condition to serve as collateral. If, for example, a fire occurs, it could lose value. That is why it has the obligation to reduce the risk. The shape? Insurance that assumes the expense of recovering the property, if it is affected, or of paying its value if the loss is total.
I think we will agree on this: you would not want to continue paying a loan on a good that you can no longer use.
For that is all risk insurance.
About the endorsement
Now, if it is so important for the bank, why does it authorize you to get it on your own?
The financial institution knows that insurance companies generally offer similar insurance. And insurers know the conditions that each financial institution has to accept insurance. Therefore, it allows you to do the business with the broker and asks that the policy be endorsed in your favor.
Have you heard of the small letters in the policies?
The bank has the obligation to review the text, conditions, exclusions, the validity of the policy in order to guarantee the business. The policy you bought must have the same conditions as the ones they would hire.
That is why they charge for the study of the endorsed policy.
From the beginning, it is agreed that the policies cannot be modified in essence. They must remain the same conditions until the end of the business. Each year you will have to renew them (write on your agenda).
The costs of endorsing insurance on a mortgage loan
The costs of endorsing insurance on a mortgage loan are made each time the policies are renewed or modified. That is, at each annual renewal of the endorsed insurance, the bank will charge you for the review and evaluation of the conditions to ensure that everything is protected. This amount is usually charged from your account and is not included in the fee value.