At the time of requesting the mortgage, you have the option of taking out linked life insurance that covers the payment of the loan in the event of your death. This is a solution to not leave that debt to your relatives. In certain insurance companies, they offer you the possibility that your policy not only covers the outstanding debt with the entity but also that a part of the capital is directed to your relatives. This occurs when constant capital is contracted.
Mortgage life insurance, constant or decreasing insured capital?
Choosing the insured capital well in any life policy is essential. In the case of life insurance linked to a mortgage, you must take into account if it is enough to cover the outstanding debt with the entity or if you want your loved ones to receive extra financial support.
Generally, the banking entities with which the mortgage is contracted will offer a decreasing capital product. On the other hand, other insurance companies such as Get life offer you other possibilities that allow the product to better fit your needs and objectives.
- Capital insured in mortgage life insurance
- What is constant capital?
- Decreasing life insurance based on outstanding debt
- Differences between constant and decreasing capital in the mortgage life policy
- What capital to take out in life insurance for a mortgage with two owners?
- Mortgage life insurance that covers your needs
Capital insured in mortgage life insurance
When we speak of insured capital, we refer to the amount agreed with the insurance company that will be delivered to the beneficiary of the policy in the event of the death of the insured person. In products associated with the mortgage, this amount is intended to cover the loan that the bank granted you for the purchase of your home.
Generally, banks offer this product to ensure that the debt payment will be made no matter what. In this case, the insurance market by banking entities is only concerned with covering this debt. In this way, they offer abusive and highly standardized products. They give you bonuses for hiring them with their entity, which is not as beneficial as they present them.
Through an independent insurance company, you will be able to contract a much more personalized product at a better price. Although the bank does not offer you bonuses, this option will surely be more profitable for you. Here we explain how the mortgage penalty would be in the case of not taking out life insurance with the entity.
Is there a minimum capital in mortgage life insurance?
What is established for these products is that they cover at least 50% of the outstanding debt. However, it is advisable to put in 100% of the loan. Also, if you want to protect your family, adding a little more capital or choosing a life policy with constant capital are two highly recommended possibilities.
Can the insured capital be changed in mortgage life insurance?
Generally, as with American Amicable Life Insurance, changes can be made. In this way, it is possible to increase and decrease the amount of insured capital contracted when it covers the mortgage loan. Just as this product can be canceled. Keep in mind that life insurance is never mandatory, whatever its type.
What is constant capital?
The constant insured capital in insurance comes to indicate that it does not change at any time during the life of the product unless the insured requests it. This is the model of traditional life products, but it is not so recurrent in those linked to a loan.
Although it is not as common, there are mortgage products, such as Get life, in which you can choose this type of capital. In this way, if when contracting the product you choose a capital of €200,000, although the outstanding debt is reduced, it will remain at €200,000. For the insured capital of the product to be reduced, the policyholder must request it from the company.
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The main advantage of choosing constant capital in your mortgage policy is that your loved ones will receive much more complete protection. With this product, if something happens to you, the pending debt with the bank will be settled and, in addition, the rest of the compensation will go to the people you choose as beneficiaries.
Decreasing life insurance based on outstanding debt
As we have mentioned, the life insurance for mortgages that entities usually market offers a decreasing capital based on the outstanding debt with the financial entity.
Thus, when you take out a policy that covers the entire loan, for example, €200,000, as you pay the bank month after month, the insured capital will be reduced at the same time. When several years go by and, for example, you have contributed half of the loan, leaving €100,000 to pay, you will be able to see how the capital of the policy has been reduced and it is the same amount.
Differences between constant and decreasing capital in the mortgage life policy
If you are considering what type of capital to choose for your mortgage life insurance, it is important to take into account the differences between these two products.
- In a product with constant capital, the amount of insured money is maintained throughout the life of the product, while in a decreasing one it decreases.
- The objective for which these products are contracted is similar but different. While with the decreasing capital you ensure that your family does not have to pay the outstanding debt, with the constant capital policy they will also receive an extra-economic amount.
- You should keep in mind that greater protection carries a higher price. Thus, while policies with a constant capital increase in price year after year, the premium for outstanding capital insurance decreases.
- Decreasing principal products will end at the time the debt is fully paid off. In a constant capital product, you can renew the contract and keep the policy active until the time you want or when you reach the maximum age established by the company. In the case of getting life 74 years.
When choosing, you must take into account your objectives and needs, do not base your choice only on the price of the policy. Also, if for any reason you want to reduce the capital of your insurance with constant capital, you will be able to do so without problems.