A consumer loan or credit card is often accompanied by a number of insurance contracts. Moreover, in practice, many bank employees take out insurance by default, including an insurance premium in the amount of the loan, hoping for the carelessness of customers, or claiming that they will not approve the loan without insurance.
A negative attitude towards bank insurance is caused not so much by the availability of insurance as by the methods of “selling” insurance. The client receives a minimum of information about the service or does not receive any at all. Availability of insurance is not a priori a bad factor. You need to carefully calculate the total cost of servicing a loan, taking insurance into account and without, and understand what risks are being insured. We will try to answer the most common questions related to insurance when issuing bank loans other than auto and mortgage.
1. How to determine that insurance is included in the loan agreement?
The client’s desire to participate in the insurance program can be expressed by putting a tick (set by default) in the corresponding section of the loan application form. A separate application for insurance may not be. Insurance parameters (insurance amounts, installments and term) can be indicated either in the loan documentation itself or in a separate offer policy, which does not require an additional signature of the borrower. In this regard, some clients will find out that they are participating in the insurance program only after signing a loan agreement, when they begin to carefully study the signed documentation. No matter how trite this advice may sound, but read all the documentation carefully before signing it.
2. What are the consequences of canceling insurance?
Any type of insurance when applying for a loan where there is no collateral is voluntary. The client can refuse to include insurance both before signing all documents and after. Formally, the decision on insurance does not affect the decision on granting a loan. But in case of refusal from insurance, the interest rate may be increased, or the refusal “without explanation of reason” may follow. The banks position the difference in the interest rate as a “discount” when connecting to the insurance program, which is associated with a decrease in the risk of loan default.
But the most common argument of bank managers is a possible refusal to provide a loan. It is impossible to prove that a loan denial is due to lack of insurance. That is why many borrowers, fearing failure, agree to a loan with insurance in the hope of then terminating it and returning the money. However, the termination process in practice is not as simple as it seems initially.
3. Is it possible to refuse insurance after concluding a loan agreement?
According to article 958 of the Civil Code of the Russian Federation, a client can refuse insurance at any time, but it is necessary to calculate the consequences. This may change the interest rate on the loan agreement, but more important is another point. If the policyholder refuses the contract, according to paragraph 3 of Article 958 of the Civil Code of the Russian Federation, the premium is not refunded unless otherwise provided by the contract.
Some insurance companies provide customers with a “grace” period during which the client can refuse insurance with a refund of the fully paid insurance premium. This period is usually 2–4 weeks. In other cases, insurance companies offer to return part of the premium for a paid but not used period, taking into account deduction of expenses for conducting business (such expenses can reach 80%). But according to the rules of most insurance companies, when the insurance contract is terminated, the paid insurance premium is not refunded.
It is necessary to pay attention to how the insurance premium is calculated. There are monthly, annual and one-time payments for the entire loan term. If the calculation of insurance premiums occurs on a monthly basis, then by refusing insurance, you will receive savings from future payments. If the insurance premium is paid at one time and is not returned upon termination of the contract, then there is no reason to refuse. Savings do not arise, and insurance coverage ceases.
4. Is the insurance premium repaid in case of early repayment of the loan?
Quite often, the insurance rules separately specify the conditions for the repayment of part of the premium upon early repayment of the loan. Depending on the insurance company, the premium may or may not be returned. It is believed that in this case, part of the premium can be returned through the court, the loan is repaid and the insurer does not bear any responsibility. Consequently, the possibility of an insured event has disappeared. This opinion is erroneous. It is not “credit repayment” that is insured, but, for example, life, and the likelihood of an event does not disappear.
The insurance amount is not always equal to zero, it can be set in the amount of a loan for the entire insurance period or planned debt at a certain date. In both cases, the beneficiaries are: the bank – in the amount of the balance of the debt, the borrower (his heirs) – in the amount of the positive difference between the amount of insurance payment and the balance of the loan. Termination of the insurance contract can be considered as a refusal of the insured from the contract (paragraph 3 of Article 958 of the Civil Code of the Russian Federation).
5. What is insurance from?
Cardholder life and health insurance
The insurance coverage, depending on the requirements of the bank, may include risks: death, impairment of I, II, III groups, temporary disability. Upon the occurrence of an insured event, compensation is paid covering the loan balance.
When connecting to a collective insurance program, in addition to studying the standard parameters of a life insurancecontract that can be requested from a bank manager, it is important to determine whether you meet the term “insured person”. Many insurers exclude from this definition persons whose profession is associated with increased risk (armed forces, aviation, sports, etc.), or who have chronic diseases. The insurer will not pay, even if such clients are connected to the collective program.
Job Loss Insurance
When insuring against loss of work, the insurer promises to cover part of the monthly loan payments in case the client loses a permanent source of income due to circumstances beyond his control. When concluding such an agreement, you must understand:
Dismissal should be according to the article specified in the list of insured events (usually “reduction”, “liquidation of the organization”, but never “at will” or “by agreement of the parties”).
Almost every insurance program has a temporary deductible (2-3 months) – the period after the occurrence of the insured event, in which the insurance payment is not made. Some insurers set a waiting period – the period from the date of purchase of the policy, during which the occurrence of the event is not recognized as an insured event.
After the occurrence of the insured event, it is necessary to register with the employment service and be registered throughout the entire period of the temporary deductible and the subsequent period of absence of official work.
The definition of the insured person may limit the age, minimum length of service or minimum length of service at the last place of work.
Bank card insurance
This type of insurance is mainly comprehensive and implies insurance of the “plastic” itself, as well as insurance against loss of funds. Depending on the insurance program, bank card insurance may include:
– insurance of the card itself against loss due to theft, loss, malfunctioning of an ATM, from mechanical damage, demagnetization, etc.
– unauthorized withdrawal of funds from the card by using a third party card after it is lost or using a fake card with valid details, phishing, skimming;
– theft of cash withdrawn as a result of theft, robbery or robbery (usually within 12 hours from the time of cash withdrawal at an ATM)
This type of insurance can be recommended to borrowers who often pay for purchases on the Internet or use ATMs that are not in the bank branch. For the correct use of such contracts, it is necessary to familiarize themselves with the definition of the insured event and the procedure for its occurrence. For example, according to the rules of some insurers, payments may be refused if you do not contact the bank within 12 hours from the moment of the event to block the card. It is also worthwhile to carefully study the size of the payment, since some contracts with an acceptable insurance amount have a low limit for one insurance event.
We have described the most common options for insurance programs. In practice, there are both programs with significantly narrowed and wider insurance coverage.