Collateral protection insurance
The borrowers have a long-term important obligation to ensure that borrowers are well aware, that besides the obligation to repay the loan, they are committed to maintaining two insurance policies in which the beneficiary (in the amount remaining) is the lending bank: Fire and earthquake insurance of the home and life insurance and sometimes permanent disability for the borrower’s job. The purpose of these insurances is to secure the bank from damage to the property or from the risks of the borrower, which would make the repayment precarious. The cost of such insurance can usually be reduced by choosing similar insurance policies from the free market. For both Fire and Earthquake coverage and for Life and Disability coverage, the insurance market offers good alternatives to well-recognized companies. Also, the risk that banks’ loan contracts do not require but is more likely than the ones covered, is that of the temporary incapacity of work that makes the borrower unable to generate income. This coverage can replace up to 80% of actual income. The risk of temporary incapacity of work is more likely than permanent impotence or loss of life but not required by banks, for the borrower.