The Covid-19 crisis is disrupting all sectors. Nearly 5 million employees are currently on short-time working. As a result, most employees are seeing their pay cut, and are worried about their ability to repay their mortgage payments. When can borrower's insurance be activated? Here are some answers.
Mortgages: what is the purpose of loan insurance?
When taking out a mortgage, borrowers are required to take out specific insurance with a bank or insurer. Loan insurance protects the borrower, his/her heirs and the lender in the event of death, disability, incapacity or loss of employment. When a risk arises, the insurer takes the place of the borrower and reimburses all or part of the remaining monthly payments.
More specifically, the guarantees offered depend on the nature of the operation to be financed and the contract chosen. The main ones are :
- total and irreversible loss of autonomy (PTIA) cover
- total permanent disability (TPD) cover
- permanent partial disability (PPD) cover
- Temporary disability coverage (ITT)
- job loss insurance (optional)
How does job loss coverage work?
Borrowers wishing to benefit from optimum protection can take out job loss cover as part of their mortgage loan insurance, provided they are not on probation or in notice of redundancy. In most cases, this guarantee covers economic redundancy. In other words, it does not cover resignation, contractual termination or dismissal for misconduct. It should be noted that each insurance company is free to set its own terms and conditions defining the rules governing compensation, which is why it's a good idea to compare offers.
In the event of job loss, the insurance covers all or part of the monthly payment. However, contracts stipulate a maximum monthly indemnity, a maximum indemnity duration and a maximum indemnity frequency. In most cases, compensation cannot be paid in the first few months after taking out the policy, or immediately after job loss.
Partial unemployment: is job loss cover really worthwhile?
In actual fact, loss of employment cover is rarely taken out, accounting for just 2% of premiums, far less than death cover (72%) and disability cover (26%), as shown by a report published by the Comité Consultatif du Secteur Financier (CCSF) on November 11.
Moreover, this guarantee is of no use to employees affected by the short-time working scheme, whose income has fallen in recent months.
Job loss insurance has its limitations. Not only is it very expensive, but its conditions of application are particularly strict. As an indication, its cost varies from 0.10% to 0.60% of the capital borrowed. Borrowers wishing to lighten their burdens during the confinement period are best advised to opt for modulation of their mortgage repayments.