Borrower insurance is a policy that covers some or all of a mortgage’s monthly repayments when the borrower can no longer make them due to death, disability or inability to work. This coverage is a condition of the bank’s approval and has a significant impact on the total cost of the loan. Understanding how it works can help you avoid paying for protection that fails to pay out when you need it.
Uncovered claim: when a borrower is caught off guard
A borrower on extended sick leave contacts their insurer to activate their inability-to-work coverage. The response is clear: the reason for the leave is listed among the policy exclusions, or the waiting period has not yet expired. The monthly repayments keep coming, with no coverage.
This can happen when a policy is signed without carefully reviewing its exclusion clauses. Certain back conditions, mental health conditions and high-risk sports are regularly excluded from basic coverage. The borrower then discovers they have taken out only partial coverage, designed for a typical profile that does not match their own.
Choosing borrower insurance for your mortgage means checking the exact list of exclusions and the conditions for each benefit to take effect before signing.
If a claim is denied, borrowers have several options. The first is to challenge the decision with the insurer’s complaints department, providing detailed medical records. If the dispute continues, they can refer the matter to the insurance ombudsman.
This free process results in an opinion within a few months. As a last resort, legal action may be an option, particularly if the pre-contractual information was incomplete or the duty to advise was not met.
Borrower insurance policy benefits: look beyond the labels
Benefits have similar names from one policy to another, but their scope can vary considerably. Two concepts deserve particular attention: the waiting period and the deferred coverage period.
The deferred coverage period is the time after taking out the policy during which no benefits apply. The waiting period, on the other hand, starts when the claim occurs: the insurer only begins paying out once this period has elapsed. A policy with a long waiting period costs less, but leaves the borrower to cover several months of repayments alone.
Benefits to review first
- Death and PTIA coverage (total and irreversible loss of autonomy): included in all policies, these benefits pay off the outstanding loan balance with the bank.
- ITT coverage (temporary total incapacity for work): covers monthly repayments during a period of sick leave, but its definition varies depending on whether the policy requires the insured to be unable to perform “their” job or “any” job.
- IPT and IPP coverage (total or partial permanent disability): the qualifying threshold varies from one insurer to another. One policy may set the IPT threshold at an invalidity rate above a certain percentage, while another may use a different threshold.
- Job-loss coverage: optional and often expensive, it is available only to employees on permanent contracts and comes with restrictive conditions on the benefit period.
The policy’s definition of incapacity makes all the difference. A policy that covers the inability to perform “any professional activity” may refuse to pay out if the insured is deemed capable of doing another job, even one very different from their own.
Borrower insurance coverage ratio: dividing cover between co-borrowers
The coverage ratio is the share of the loan covered by insurance for each borrower. The bank requires a minimum level of overall coverage, generally the full amount borrowed.
Two co-borrowers can split this coverage equally or adjust it according to their respective incomes. If one of them earns most of the household income, assigning them a higher coverage ratio offers better protection for the family budget if they make a claim.
A total coverage ratio above the required minimum increases the premium but provides extra security. If one co-borrower dies, the survivor’s share of the repayments is reduced—or even eliminated if the deceased borrower’s coverage ratio covered the entire loan.
Choosing an external insurer and switching policies during the loan term
The law allows borrowers to choose an individual policy from an external insurer instead of the group policy offered by the bank. This option, known as insurance delegation, makes it possible to compare several offers.
The bank’s condition is that the external policy must provide a level of coverage at least equivalent to that of its group policy. Equivalence is assessed against criteria set by the lender and provided on a standardised information sheet when the loan is requested.
Switching insurance during the loan term
Borrowers can cancel their insurance policy at any time after the first year, with no fees or penalties. They must find a new policy that meets the equivalent-coverage requirement, then send a cancellation request to their current insurer.
The bank has ten working days to accept or reject the new policy. Any rejection must be explained in writing and based on a lack of equivalent coverage. A rejection without reasons, or one based on criteria that were not disclosed in advance, can be challenged.
The financial savings from switching policies depend on the borrower’s profile, age and the remaining loan term. Individual policies often use personalised pricing, whereas group policies pool risk. Young, healthy borrowers will generally benefit from comparing external offers.
Checking the actual scope of each benefit, adjusting the coverage ratio to suit the household’s profile, and comparing policies based on their claim conditions rather than just their monthly price: these three habits reduce the risk of being left without coverage when it is needed.
