Life insurance: Is it profitable to take out your insurance with the bank?
Taking out life insurance through the bank is no longer obligatory in Spain since the reform of 2019; you are now free to choose your insurance and be able to insure yourself properly and at a lower cost.
Life insurance death has several purposes:
- in the event of the death of the insured, a capital sum will be paid to the beneficiaries of the contract.
- in the event of the death with a mortgage, the capital will be paid to the bank to cover the repayment of the mortgage
Taking out life insurance through the bank is no longer obligatory in Spain since the reform of 2019; you are now free to choose your insurance and be able to insure yourself properly and at a lower cost.
Is it compulsory to take out life insurance with the mortgage ?
First of all, you should be aware that taking out life and death insurance with the mortgage loan is NOT mandatory. According to the new law on mortgages, banks can no longer force customers to take out products linked to the mortgage loan such as home, life and death, car insurance...
What are the main changes in the 2019 reform?
- Banks can no longer sell insurance related to any type of mortgage loan.
- They can no longer penalize you by offering you unfavourable loan terms simply for choosing a policy from another insurance company.
- They can require you to take out life insurance, but they can no longer impose their policy on you as they did before this reform.
It should be noted that, on average, life and death insurance policies sold by banks are much more expensive than those sold by insurance companies or brokers. In concrete terms, you pay on average 48.3% more for your insurance premium if you take out a policy through a bank (Inese 2017 study).
Banks will offer a reduction in the interest rate if we entrust them with certain products (insurance, salary...) . In view of this practice, we always recommend that you carefully analyze the data of your mortgage project, with and without insurance products, to see if it is really worthwhile to take them out with the bank.
Here is an example: Xavier has signed a life insurance policy with his bank that costs him 500 euros a year. If he decides to change his policy, he will have a penalty that will force him to pay from 601 euros per month to 607 euros for his mortgage. By comparing prices, he discovers that he can get the same coverage from an insurance company for 100 euros a year. If he changes, the mortgage will cost him 72 euros more per year (6 euros more per month), but the insurance policy will cost him 400 euros less. In total, changing his life insurance policy saves him 328 euros a year.
In addition, you should not only keep in mind that going to an insurance company means a significant annual saving, but also in the long term. Imagine paying more than 300 euros less per year for 20 years. In the end, it will be a matter of saving thousands of euros….
Why insurance is so expensive with banks?
For banks, life insurance, home insurance or pension plans can largely compensate for the lower interest rates in the mortgage sector.
What if I already have insurance with the bank?
If you already have insurance with the bank that cover your loan/mortage, you can always apply your right of withdrawal, cancel it and choose to take out a policy with an insurance company by following a few simple guidelines:
1 - Check the anniversary date of your insurance policy.
Start the procedure as soon as possible and inform your bank of your wish to cancel the policy one month before the expiry date of the insurance policy It is important that you do this, because if you do not notify and the contract expires, it will be renewed automatically.
2 - Choosing the best insurance by using a broker
An insurance broker is a specialist who will be able to advise you and offer you the best coverage according to your needs.
If you don't have life insurance yet, don't hesitate to ask us for a comparison of the best life insurance here.
More information about life insurance
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