The changes in the so-called anti-usury act, which came into force in July 2017, caused that banks and loan companies received a solid blow, and customers gained many benefits. With regard to consumer credit, its main purpose is to introduce a limit on non-interest loan costs, such as insurance, commission, preparation fees and other costs related to debt service.
The Act precisely defines the costs of additional services, which sometimes significantly increased the total amount to be repaid. We are also talking about credit insurance, which we are sometimes obliged to buy to borrow money. In June 2019, the government adopted a draft tougher anti-usury law. Its main assumption is the fight against usury loans, but the consequences of the changes will not bypass the banking sector. The new regulations are aimed at breaking with any freedom when setting commissions, margins, fees for processing applications or insurance. Adding these additional fees allowed banks to bypass the provisions of the Act and earn in a different way. Thanks to this, it was possible to reduce losses resulting from statutory changes.
Do I need to insure the loan?
Many probably wonder if credit insurance is compulsory. The answer can be found in the Act of May 22, 2003 on compulsory insurance, the Insurance Guarantee Credit and the PolaMotor Insurance Company, in which art. 3.1. clearly states that insurance is not a statutory obligation but only a bank requirement. Why do banks encourage the use of insurance? This is undoubtedly a form of security for them, thanks to which they can be sure that the money borrowed will return to them.
What is credit insurance?
Credit insurance is to be an additional collateral for repayment of the debt. It can be said that this type of procedure replaces the person who is the guarantor, which is very difficult nowadays. In the case of consumer loans for lower amounts, this is usually optional, however, a mortgage obliges you to take out property insurance, and recently also a life insurance with the bank as the beneficiary.
Why use insurance? In the face of sudden fortuitous events, job loss, deterioration of health, etc., when we cannot perform paid work, and thus there may be difficulties in paying off loan installments. The purpose of insurance is to ensure the safety of you and your family in the face of such unforeseen events.
Is credit insurance worth it?
Be prepared for the fact that a loan without insurance is burdened with additional margins or commissions, which means that it is not profitable for the consumer not to use the insurance.
To make sure it’s worth using the insurance, first read the policy details in detail. This will allow you to assess whether it is worth paying additional credit costs in the form of insurance. Focus especially on policy points, which say when the institution will not pay the money, and thus the debt will not be repaid. A bank employee is obliged to provide you with a document with the General Terms and Conditions of Insurance, thanks to which you will learn in what situations will lead to the receipt of insurance funds and which will not. It is important that you verify whether the signed credit insurance agreement guarantees you full repayment of the debt or only a few subsequent installments.
Types of loan insurance
Credit insurance can be divided into two main categories:
1. Credit repayment insurance, which is usually voluntary and protects us in the event of losing health or life work.
2. Property insurance, i.e. real estate, for example. It is mandatory for a mortgage.
The loan is insured primarily in the case of a few most common random situations, on this basis we can distinguish one of the most popular, i.e. insurance against loss of job. Here you should be careful, because very often the insurer places a record that if the work was lost due to your fault or if the employment relationship was terminated by mutual agreement, the insurer will not cover your liability. The greater the amount of the commitment, the safer this type of protection is. Usually, the insurer takes over the repayment of installments for us, so when concluding the contract, you should pay attention to how long we will have a calm head, because the insurer pays installments for us when we are out of work.
Credit insurance – what is worth using?
1. Insurance against incapacity for work. In this case, it is worth looking at the definition of incapacity for work. According to ZUS, this is a total or partial inability to gain work resulting from depriving the body of fitness and not promising to regain capacity after retraining. Inability can be the result of an accident at work or on the way to work, as well as an occupational disease.
The aspect of the lack of retraining and how the institution will interpret the case may raise doubts.
2. Permanent invalidity insurance. In order for the insurer to pay back the debtor’s obligation, the latter is obliged to present a certificate from the Social Insurance Institution on invalidity.
3. Death insurance. When the borrower dies suddenly, the insurer pays the remainder of the debt after receiving a written application and a death certificate from the family.
4. Insurance of low or insufficient own contribution. Changes in the provisions on loans meant that people who wanted to take out a mortgage must have 20% of the value of the liability – this is the so-called own contribution. For example, when you incur a liability of PLN 300,000, you should provide PLN 60,000 and the rest in the form of PLN 240,000 will credit you. However, to meet the expectations of customers who do not have such funds, the above-mentioned insurance was introduced.
Thanks to such a solution, the bank would recover 20% of the liability from the insurer, and another 80% from the debtor if it ceased to pay regularly.
5. Property insurance. It is necessary especially in the case of mortgage loans. In this way, the bank protects against random events that cause the property to be destroyed.
Remember this when insuring your loan
In order to avoid unpleasant surprises, you definitely need to read not only the General Insurance Condition, but also what the individual definitions mean. What does unemployment or disability mean for an insurer? Can our health be significant if it comes to taking over debt repayment. Are the circumstances of death taken into account.
It is also important to inform the family about liability insurance. In the event of death, they will be forced to make a statement in the right place so that the loan will be repaid.
How much does loan insurance cost?
The cost of loan insurance is usually calculated as a percentage of the value of the contracted liability. It’s not like the insurance we choose is always combined with the financial product we use. When, after analyzing the conditions, it turns out that the proposed conditions are not very attractive to us, we can go to the insurance company and directly sign the contract there and present the policy to the bank.
The amount we will pay also includes the scope of protection, the amount of the obligation incurred and the time in which we will have to pay it back. Your age and creditworthiness can also affect. The decision whether to pay the premium in full or whether we decide to pay in installments for insurance may prove to be significant.
Cancellation of an insurance contract
In the case of a mortgage, the amount of the insurance premium can be very high. It often happens that due to lack of time or knowledge, we decide on the offer proposed by the bank. However, it is worth checking whether signing an insurance contract directly with an insurance company will not be more beneficial.
Nothing prevents you from using a third-party offer when you renew your protection. All you have to do is find in the General Terms and Conditions of Insurance that you can terminate your insurance contract.
During this time, make an appropriate statement, sign a new agreement and present it to the bank. Even if the price is not much more attractive, it is worth checking whether the offered conditions are more favorable.
How to buy credit insurance?
You have two options to ensure your credit protection. First of all, you can take advantage of the offer offered by the bank. However, if it seems unattractive to you, you can find an insurer on your own. It will also be helpful to consult with companies or people who can look through many of the insurance products available on the market and find the ones that are most beneficial.
Bank assurance and Recommendation at the Polish Financial Supervision Authority
Recommendation U is a set of rules regarding good practices in the so-called bancassurance, i.e. cooperation of banks with insurance companies. Thanks to these provisions, the distribution of insurance by banks is to be improved. These regulations are intended to protect the interests of consumers. The changes introduced by the Polish Financial Supervision Authority meant that banks should only offer you insurance products that suit your needs. For example, forcing clients from the offer of a specific insurer has been shortened. If another insurance company offers you a policy on more favorable terms, but meeting the requirements, the bank should honor it.
The activities of the Polish Financial Supervision Authority are aimed at ensuring greater transparency in the process of concluding protection between the customer, bank and insurer. The consumer must be thoroughly familiarized with the scope of protection, who provides the insurance, and on what terms it will be paid.
Credit insurance, although optional in many cases, allows you to have a calm head. If you are familiar with the General Terms and Conditions of Insurance, various random situations that may cause difficulties in paying off your debt, especially long-term debt, will not make you face, for example, loss of property. It cannot be denied that banks very often “force” us to buy insurance. If you do not use this option, the commission, margin and overall total liability amount may be higher.