Loan insurance coverage: when it is mandatory and when it is convenient
The Customer who signs a loan can decide whether to stipulate a Loan Insurance Policy.
The insurance coverage on the loan can be of two different types: the CPI or the Credit Protection Insurance, it is the policy to cover the credit that may be mandatory or optional depending on the type of loan and the various Loan policies that may be requested at the discretion of the customer.
Loan insurance policies are sold together with the CPI and may provide different types of coverage. For example, an Accessory Policy may allow the Client to skip one or more installments of the Loan for a maximum period established in the contract and to recover them later, extending the extension of the Loan for the period in which the Client has skipped the installments.
The insurance coverage on the loan is used by the bank or by the credit institute providing protection against the risk of insolvency of the customer but also serves the customer as a form of protection in some specific cases.
When does the insurance intervene?
Loan insurance intervenes and covers certain installments or even the full amount of the loan, when the Customer is no longer able to autonomously provide for the payment of the Loan, ie when one of the following cases occurs:
• Severe illness;
• Permanent total disability;
• Temporary total disability;
• Loss of employment.
The insurance coverage on the loan is strongly recommended because it protects the customer in the event of temporary difficulty in paying the installments, without incurring problems arising from late payment.
When is it mandatory and when optional?
Insurance coverage is optional in the case of the Personal Loan and can be stipulated at the discretion of the Customer. In any case, it is the discretion of the Bank or of the paying Credit Institute to ask the Customer to stipulate an Insurance Policy as an indispensable condition for the successful completion of the practice; for example, when the Customer is considered a person at risk due to problems in the past as a Bad Payer or when the Loan is high.
Insurance coverage is mandatory by law only in the case of the Fifth Salary Transfer, the employee will be obliged to take out an Employment Risk Insurance and a Life Risk Insurance; and in the case of the Assignment of the Fifth Pension, the Pensioner must stipulate a Life Risk Insurance. In these cases the cost of the insurance premium must be included in the APR of the loan (Annual Effective Annual Rate), its percentage indicates the total cost of the Loan.
How is the insurance coverage paid?
The insurance premium must be paid by the Customer in a single solution at the time the Loan is disbursed or deferred with a monthly amount that is added to the loan installment.
In the case of early repayment of the Loan, ie when the Client closes the Loan prematurely, then before its natural expiry, the Client may request the reimbursement of the premium portion relating to the period not used directly by the insurance company.
When should insurance coverage be stipulated on the loan?
Taking out insurance coverage on the loan is always convenient. The customer who decides to do so will certainly benefit from the customer who decides not to do so because it is more protected in the event of difficulty in paying the loan itself: the risk of being reported as bad payer fails and the customer still manages to honor the obligations assumed with the Bank or with the providing credit institution.