The overall price of insurance depends on multiple criteria, including the percentage retained. This involves distributing the coverage offered by the insurer between borrowers. Pay close attention to this essential step for the security of your real estate transaction.
What is the insurance quota used for?
If we take the example of a property loan of €20,000, an insurance ratio of 100% means that the guarantee covers the entire loan. Thus, in the event of the death of the single borrower, for example, the insurance reimburses the bank all the capital remaining due.
This minimum portion of 100% (it can be higher, see below) attached to a loan is required by all banks. When the loan is made by two people, the portion can be shared between the borrowers. If the split is balanced (50%/50%) and one of the two subscribers becomes disabled, for example, the valid spouse will only have half of the monthly repayment to ensure: if the monthly payment is 1 000 €, he only has 500 € left to pay to the bank.
How to choose your distribution?
“If you want maximum insurance, you must opt for a ratio of 100/100, or 200% insurance. In this situation, in the event of a problem, the surviving spouse (or the one who is not disabled or unable to work) no longer has to pay anything at all, explains Benoît Gommard, of BNP Paribas Cardif France. In a choice of quota at 100% maximum, it is also possible to choose the quota according to each person’s income. Example: someone who has a higher salary is insured at 70% and their spouse at only 30%. This means that if the first dies, for example, the second will only have 30% of the premium to pay. »
The choice of the overall amount of the quota (beyond the 100% basic requirement) as well as its sharing between subscribers is in fact left to your discretion. All combinations are possible.
What overall amount?
The vast majority of subscribers choose the basic quota of 100% “on one or both heads”, as insurers say. The main reason: the cost of insurance, which many want to reduce to its lowest level.
Certainly, but paying more for insurance is sometimes worth it if it keeps your family as safe as possible. Before choosing 100% classic by default, take the time to think about your personal situation.
Of course, insuring yourself at 200% is the most secure solution (the one that your banker will strongly advise you, appreciating to multiply the premium by two): why not if you really want to be free of any financial worries in the event of a problem. But the formula will be expensive! And it is not necessarily essential: if, as an able-bodied spouse, you continue to work and benefit from the salary which allowed you to repay, before the disaster, your share of the monthly payment, why could you not do so afterwards? It’s a personal choice…
If you want to increase the security of the operation, you can opt for an intermediate formula at 120% or 150%. Everything is possible, it’s up to you depending on your personal situation… and your financial means!
If you also have savings, the 100% quota can be more than enough: in the event of a problem, you can, at worst, draw on your savings. This allows you to pay less (in insurance premium) for a risk that may never materialize.
What sharing between subscribers?
Once the overall amount has been chosen, you must determine the distribution of the portion, for a loan between two people. And, here again, you don’t have to “do like everyone else” by choosing the classic 50%/50%.
Setting each person’s percentage must result from family reflection, and be decided with full knowledge of the facts. Does one member of the couple have a significantly higher income than the other? In this case, why not insure it at 60%, 70% or 80% to leave 40%, 30% or 20% to whoever earns the least (for a 100% share)? Same idea of unbalanced sharing if the overall share is higher (150%…), of course.
Do simulations. Without Spouse A’s current income, will Spouse B be able to cover the remaining monthly repayment? And vice versa. Your current income, the certainties or uncertainties you have about your professional career (What will your income be in 10 or 15 years? Do you want to create your business?), but also your assets (current and future: you are waiting for a inheritance which could be used in case of need) should help you make the decision best suited to your profile.
