In our time of great political and economic upheaval, everyone is trying to protect themselves and their capital. No exception and banking institutions. This is especially true for long-term loans and related risks. One way to preserve bank investments is insurance. Long-term loans, in particular housing loans, are characterized by such a way of dealing with risks as mortgage life insurance.
Arguments for concluding insurance contracts
There is no absolute need for this product at the stage of concluding a mortgage agreement, but any bank has a very negative attitude to such conclusions, therefore the chances of getting a positive result from a client without insurance tend to zero. This position was caused not by the bank’s attempt to squeeze the maximum amount of money out of the client, but by the attempt to protect the investment. Since high mortality and negative social processes multiply the risks of loan default.
Therefore, a life insurance contract , albeit behind the scenes, is a prerequisite for obtaining a positive result regarding mortgages. The form and content of the contract may vary dramatically depending on the selected or recommended insurance campaign.
The need for life insurance for customers of banking institutions
As a rule, a life insurance contract is concluded not with the bank, but with companies aimed at working with the risk of non-repayment of borrowed funds. Therefore, banks often conclude contracts on mutually beneficial terms and send their customers to specific companies. The need for such a relationship is due to the following:
- upon occurrence of an insured event related to health, the insurer makes the funds for the client;
- in the event of the death of the borrower, there is no need to wait until the relatives enter the property right;
- in case of loss of solvency of the client there is the possibility of a six-month delay.
Therefore, life insurance for a mortgage is one of the prerequisites for concluding a loan agreement.
Coverage of the risks of loan defaults by Russian banks
Many Russian banks, given the extremely unstable economic situation, have introduced in their charter a number of provisions regulating the procedure and conditions for issuing long-term loans. The social research request “Mortgage, Banking Conditions” showed that most modern banks have contributed a constant to get a positive result.
In connection with this provision, banks are forced to create their own insurance structural divisions or enter into agreements with already established insurance companies. Naturally, having incurred these costs, banks raise interest rates on long-term loans for their customers.
Mortgage Insurance at Sberbank
Sberbank of the Russian Federation is the largest institution in the financial services market of Russia. Accordingly, this organization can offer the most convenient conditions for obtaining a mortgage. Mortgage life insurance is a positive factor for a positive decision of a client’s appeal.
In long-term credit relations, there is always a risk of unaccounted for or force majeure circumstances. Therefore, there was a forced need to create such a tool as “Sberbank: mortgage, life insurance”. This tool has a positive effect on the number of satisfactory applications of residents who want to apply for a mortgage. In case of refusal, Sberbank reserves the right to raise and revise the loan interest rate. Given the minimum loan amount, this percentage significantly affects the final cost of the loan object.
Current conditions for long-term lending to Sberbank
Given the fluctuations in the foreign exchange market, Sberbank sets base rates for long-term loans. For example, at the moment, the current rate of 14.5%, it is valid until 02.28.2015. In the event of a client’s refusal to use the services of the Sberbank: Mortgage, Life Insurance tool, the rate rises to 15.5% for him.
But, despite all the nuances, Sberbank occupies a dominant position in the long-term loan market in terms of the number of executed contracts. Many customers mistakenly believe that if a mortgage (Sberbank) is taken, life insurance is mandatory. These statements are untrue, since Sberbank does not violate federal laws that specifically express the right to "optional life insurance for long-term loans."
Mortgage Insurance at VTB
One of the most attractive banks in the long-term loan market is VTB.
To minimize or eliminate possible risks, some types of insurance liabilities have been introduced at this institution depending on the term, type and amount of the loan. A potential client, before choosing a loan type and applying to an employee of an institution, is obliged to familiarize themselves with the following document “Mortgage: conditions of banks” in order to feel the difference and choose the optimal form of application for themselves. This document provides an opportunity to see all the advantages of VTB mortgages, as well as introduces a potential customer to the VTB: Insurance system.
Features of the VTB mortgage
VTB specialists have developed a long-term loan insurance system, which includes the following products:
- the impossibility of mandatory contributions due to the loss of the borrower;
- the impossibility of mandatory contributions due to the death of the borrower;
- the impossibility of mandatory contributions due to damage or loss of collateral;
- the impossibility of mandatory contributions due to the restriction or termination of ownership of the pledged property (within three years).
Without concluding an agreement with VTB "Mortgage: Life Insurance" by the borrower, the purpose of the loan becomes practically unattainable. In order to make this product as profitable as possible, VTB offers comprehensive insurance, which includes the following risks:
- natural disasters;
- consequences of a lightning strike;
- consequences of a domestic gas explosion;
- consequences of water damage;
- consequences of the fall of flying objects;
- consequences of unlawful actions.
When providing evidence of any of these conditions, the program provides for full damages. If the compensation exceeds the amount of outstanding obligations, the difference is paid to the borrower.
Mortgage Life Insurance Cost
The cost of life insurance for a mortgage depends on many factors, but, as a rule, does not exceed one and a half percent of the final cost of the loan object. The formation of value is affected by:
- gender (since women live longer than men, the interest rate for them is less than for men);
- age category (boundary age from twenty to seventy years, for the military - up to 45);
- the state of health of the borrower (hereditary and chronic diseases can become an insurmountable barrier in obtaining a mortgage);
- the risk of industrial injuries depending on the type of activity;
- hobbies (hobbies in dangerous sports negatively affect the interest rate).
In modern realities, mortgage life insurance is becoming one of the most important factors in relations between banking institutions, insurance companies and customers who want to receive long-term loans on individual and mutually beneficial conditions. Therefore, if a mortgage is issued, life insurance is mandatory. After all, it is beneficial not only to banks, but also to borrowers.