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October 11, 2018 Cash loan insurance is a form of security – both for the bank and the borrower. It is a combination of two services occurring in the financial-banking and insurance sectors. When unforeseen situations arise, the unpaid portion of the cash loan is regulated by the insurance company. In the article you just started reading you will find information about types of cash loan insurance, its functions, GTC, grace period and in what situations the sum insured will not be paid out. At the end of the text you will find a brief overview of cash loan insurance at Camibank and Meteor Bank!
What is cash loan insurance?
The definition of cash loan insurance is a combination of two services from the financial sector – banking and insurance. It is a form of security for the bank. Cash loan insurance is intended to help repay it in the event of unforeseen situations.
Cash loan insurance is tantamount to the insurance company taking over part of the risk associated with the borrower’s non-repayment. It also becomes necessary when events defined in the contract take place.
What type of insurance should you choose when choosing a cash loan?
A bank customer who decides to take out a cash loan can count on several types of cash loan insurance. The following policies are distinguished:
- life insurance,
- unemployment insurance,
- insurance against incapacity for work,
- insurance against death and permanent invalidity.
Life and unemployment insurance in cash loans
Life insurance is one of the basic types of insurance. Bank branches require it when the borrower is single, the breadwinner or a person who raises his own children. Usually, the amount of this policy is the equivalent of cash loans. When the insured dies, the bank is certain that the debt will be repaid by the insurance company.
Usually, purchasing this type of policy is voluntary. Banks then offer the customer favorable conditions. Importantly, according to the loan agreement, banks do not charge a commission fee or reduce the nominal interest rate (from three percentage points to 1.5). Some bank branches treat cash loan insurance as a sine qua non condition, i.e. an obligation.
Losing your job is related to a lack of income. This, in turn, is synonymous with the inability to pay back a cash loan. Insurance against job loss is a beneficial option for a bank outlet, for a borrower – not necessarily. Most often it contains a provision that for half a year or a year, the insurance company is obliged to pay the amounts that will be used to repay the loan.
This option is not possible in all situations related to job loss. The borrower should not count on compensation if:
- was released during a fixed-term contract,
- the employment contract was terminated by mutual agreement of the parties,
- the end of employment took place during the insurance grace period,
- job loss was caused by a lack of acceptance of new working conditions.
Insurance against incapacity for work and permanent disability
Insurance against incapacity for work is available to persons who are unable to perform professional activities. This is due to the loss of total body function. Such people have no chance of returning to work after changing jobs.
Permanent invalidity insurance is a type of policy that provides security for people whose body has been damaged as a result of an accident. The insurer is liable for the repayment of unpaid cash loan installments.
Cash loan insurance functions
Cash loan insurance, like mortgage insurance, performs the following functions:
The preventive function of cash loan insurance consists in taking actions aimed at preventing the occurrence of insurance accidents.
The compensation function is intended to provide measures to compensate for damage arising as a result of insurance accidents. This means that the payment of compensation should eliminate the damage to the injured’s finances.
The stimulation function of cash loan insurance influences the pace and direction of economic changes. It also aims to increase the credibility of contractors who have insured their debts.
The service function is associated with the preventive function. Insurance companies provide information that allows clients to make decisions about cooperation with a given contractor.
Compensation from cash loan insurance – when will it not be paid?
Compensation from cash loan insurance may not be paid if:
- the insured’s death occurred after taking psychoactive substances or alcohol,
- the borrower was in the country where wars are taking place,
- the insured participated in a crime confirmed by a court judgment,
- the borrower practiced high-risk sport: climbing, snowboarding,
- the insured was diagnosed with the disease before the insurance was concluded,
- the borrower drove the vehicle without authorization,
- the insured person committed suicide.
What should you pay attention to when reading the GTC of cash loan insurance?
The document of general insurance conditions (GTC) explains to the borrower the most important data concerning the policy. A person taking out a cash loan should pay attention to:
- definitions included in the insurance,
- subject and scope of insurance,
- duration of the insurance contract,
The insurance regulations should contain explanations of the terms contained therein, in alphabetical order.
The subject and scope of insurance, for example in life insurance, includes the basis and supplements. The subject of the policy is the insured person’s life and health. The basis is the death of the borrower, and the additions are a long-term hospital stay, serious illness or accident.
The duration of the insurance contract determines the period during which the policy protects the borrower. Usually, this point also contains a provision specifying the procedure if the insured person fails to pay contributions on time.
The exclusion of liability specifies situations when the insurer does not pay compensation. It has such an option if it considers that the damage resulted from the informed conduct of the insured.
What is a cash loan grace period?
The insurance grace period is defined when the insurer is liable for damage only after a specified period. Before the date stipulated in the contract, the insured will not receive compensation if any of these events occurs. The grace period is usually 60 days.
The insurance grace period is not valid in one case only. It does not apply to the borrower’s death as a result of an accident. Then the compensation is paid to his family under the so-called temporary protection. It applies from the moment the contract is signed to the end of the grace period.
Impact of cash loan insurance on the total cost of the loan
The most important elements of a cash loan include interest rate and commission. Cash loan insurance is another expense for the borrower. The cost of cash loan insurance depends on many factors:
- on the amount of cash loan,
- from its repayment date,
- from the borrower’s age,
- on the bank’s creditworthiness,
- on the selected scope of cash loan insurance,
- on offers proposed by bank branches,
- on the rates in force in insurance companies.
Some bank branches break down cash loan insurance into monthly installments repaid along with the debt. Others, in turn, require payment of a certain amount in the form of a one-off fee. The second option involves subtracting the amount paid from the value of the cash loan.
Typically, the cost of cash loan insurance is 0.3 percent. monthly its total amount. If the bank charges a one-time fee, then it is about 6 percent. loan amount on an annual repayment basis. If a bank branch customer has a long-term financial commitment, the cost of insurance can be as high as 16 percent. cash loan amount.
Is it possible to opt out of cash loan insurance?
The resignation from cash loan insurance is connected with the contract specifying the terms of insurance. Some documents may contain elements that allow you to resign at any time, while others will allow you to do so after repaying a certain amount of cash loan.
Before the borrower decides to opt out of cash loan insurance, he should carefully track the points contained in the contract. It may happen that the bank will charge the customer an additional margin or increase the interest rate on the loan. It is worth recalculating the costs, because the insurance can reduce the monthly installment.
Banks cooperating with insurance companies under Bancassurance
Banks increasingly cooperate with insurance companies. Banking institutions take up insurance product offers that they later offer to their clients taking out a cash loan. These products are known as Bancassurance.
Banks that offer their clients insurance under Bancassurance play the role of policyholder or insurance intermediary. In the first case, the bank branch concludes an insurance contract at the borrower’s expense. In the second, however, he prepares a document based on the power of attorney granted to him by the insurance company.
Cash loan insurance at Camibank
Camibank offers its clients two cash loan insurance packages. They can choose the basic or extended range. The first provides compensation under:
- death of the insured,
- the borrower’s permanent and total disability.
As part of the extended scope, the insurer can pay up to 18 cash loan installments. This option, in turn, includes:
- total inability to work,
- chronic illness
- job loss.
Cash loan insurance at Meteor Bank
Meteor Bank offers its clients, among others:
- life insurance,
- Strongly Secure Package,
- I choose Health.
The first option provides for financial assistance in the event of the death of the insured. His family can then count on payment of the benefit in 100%. policy amount. If the borrower died in an unfortunate accident, the insurance provides an additional 50 percent. this sum.
The Firmly Safe Package includes:
- borrower’s death,
- death as a result of an accident,
- permanent total disability.
This offer provides up to PLN 700,000 for insured benefits.