Consumer credit: truly optional borrower insurance

The majority of borrowers take out insurance for their consumer loan. Optional coverage, the benefit of which may be limited.

A long-standing habit with the borrower. In fact, one in four households made at least one consumer loan in 2018, ie nearly 8 million households, according to the latest Observatory of household loans from the French Banking Federation. Among them, more than half have also taken out loan insurance. A proportion that may seem high. If borrower insurance is essential in the context of a home loan, it is optional for consumer credit (work, personal, auto or even renewable loan).

It is precisely this close link between credit and insurance when buying a property that explains the high subscription rate of borrower insurance for consumer loans. In fact, the majority of French people own their homes. However, to obtain a home loan, the bank systematically requests borrower insurance. The French are therefore used to taking out insurance when they borrow.


Insurance that reassures

credit loans

It must be said that this coverage is widely present in commercial discourse. Whether the consumer loan was taken out online, with its banker, at a car dealership or a large retailer, or even in an agency of a specialized credit institution, it is most often advised the borrower to take this insurance.

Indeed, which borrower is not at least worried about the idea of ​​not earning enough to repay their credit? In detail, this cover includes at least 3 guarantees: death, total and irreversible loss of autonomy (PTIA) and total temporary incapacity for work (ITT). As part of the PTIA guarantee, the insurer pays the monthly payments if the borrower cannot exercise any profession for the rest of his life. For ITT, coverage lasts as long as the person is unable to continue their professional activity. Once he returns to work, the insurer does not ask him to reimburse the monthly payments paid for him. The deadlines summarize as before the ITT.


Guarantees sometimes difficult to play

credit loans

But beware of the restrictions and exclusion cases which can complicate the activation of these covers. Insurance contracts always define very precisely the circumstances which allow the payment of monthly payments to be made. Thus, for the insurer to recognize the total loss of autonomy, it is often necessary for the borrower to use the services of a third person to help him in his daily life. What is more, the circumstances of the accident or death are also scrutinized by the insurance company. For example, claims under the influence of alcohol, following the practice of certain sports (mountaineering, parachuting, etc.) or professions deemed to be at risk (firefighter, sailor, stuntman or even money conveyor) are not Covered.Disabilities related to depression or a psychiatric condition are also excluded.


The “job loss” guarantee: the most optional

unemployment loans

Optionally, borrower insurance can also cover loss of employment. Again, behind this vague expression hides a very precise definition. In this context, the insurer replaces the borrower only if the latter was previously employed on an open-ended contract. In addition, he must have been dismissed and receive unemployment benefit as such. In fact, people on fixed-term contracts, or whose employer terminated the contract during the trial period, or who have resigned, or who cannot claim compensation that cannot exercise this guarantee.

In addition, borrower insurance does not activate immediately. Excluding death, a deductible of 30 to 90 days is applied. During this period which can therefore reach 3 months, therefore 3 monthly credit payments, the borrower will have to repay the consumer loan on his own. In addition, with regard to the job loss guarantee, this is only acquired after a waiting period of 6 months in principle.


Should we subscribe? A cost-risk ratio to analyze

consumer loan

For what price? Depending on whether or not the job loss guarantee and the brand have been taken out, insurance is billed between 0.10% and 0.30% of the credit amount. It is not that borrower insurance for a consumer loan is useless or that it is very expensive, but, unlike a mortgage, its cost compared to the risk makes that it is rarely necessary.

In the context of a mortgage, the sums involved are very high. The average loan reached 170,000 dollars in 2018, according to the Prudential Control and Resolution Authority (ACPR). And the repayment period initially planned varies from 20 to 25 years most frequently. Hence the fact that the banks condition the granting of the loan to the subscription of insurance. However, in the context of a consumer loan, the amounts involved and the loan duration are not the same. According to the robot portrait drawn by Lite Lending in 2018, the French borrow on average 8,600 dollars (for a maximum of 75,000 dollars) across all types of consumer loans combined.

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