Mortgage Protection Insurance
When you purchase a property in Portugal, you will be required to take out mandatory buildings insurance and life insurance mainly for the lender’s protection. For you own peace of mind, it is advisable to consider contents insurance to protect your personal belongings and valuables that remain in the property.
Mortgage insurances in Portugal
It is worth emphasizing that both the buildings insurance and life insurance that you will be required to take out are almost exclusively for the benefit of the lender for the protection of the property and the related loan. If you would like additional protection for your and your family in the event of your death or disablement, this is something that should be discussed independently with your financial adviser.
The lender will often encourage you to take out insurance policies and sometimes other products offered by them. Very often, the sweetener for taking out insurances or other products through the bank is a significant reduction in the mortgage interest rate. However, please bear in mind that you would need to maintain the insurances or other products until the very end of the mortgage term in order to keep the discounted mortgage rate.
To make proper comparisons between insurance policies you will have to spend some time carefully reading the small print of each contract. You need to understand them even if you choose the bank´s insurance policy. Remember that the lender is ultimately looking to protect itself and you should make sure that you and your family do the same.
Multirisk insurance (Seguro Multirisco)
The mandatory buildings insurance covers the rebuilding costs of the property in the event of partial or total destruction of the property. It also pays to the lender the equivalent value of the rebuilding costs if it proves to be impossible to reconstruct the property for any reason.
A multi-risk insurance policy can include optional contents –insurance which would compensate you for loss or damage to your furniture and other personal belongings at the property.
Life insurance (Seguro de Vida)
Portuguese mortgage lenders require that residents taking out a mortgage should also take out a life insurance to ensure repayment of the mortgage loan in the event of your death or permanent disability. This is the case even if the applicant already has existing life insurance in place. Depending on the terms of the mortgage, international buyers might find a bank willing to waive the condition for life specific mortgage protection life insurance.
In case of death, permanent disability or temporary incapacity to work, the life insurance will cover the repayment of the mortgage. Age, health and the amount of money you borrow will affect the insurance cost. Older clients, clients with serious health issues or clients that take out a larger mortgage will see the premiums on the insurance rise accordingly to cover the perceived higher risk and it may well reach a level that you consider to be unaffordable or not cost effective.
As an applicant, insurance companies will ask you to fill out a preliminary questionnaire. Again, if you are above a specific age, if you have health issues or if the amount borrowed is over a certain threshold, you may require to undergo a medical exam. Depending on your circumstances, it can be superficial or thorough. It is crucial for the questionnaire to be completed accurately and honestly otherwise the cover may be later refusedeven if the claim is unrelated with the condition that was undisclosed beforehand.
Most insurance will include an excess clause (Franquia), and in the event of disability, may only kickstart after three or six months of incapacity. As for the policy itself, be aware that it may not come into force until a few months after the signing of the mortgage contract.
In the event a claim is made, the policy will repay the amount of the debt outstanding at the time of the claim, but not much more. In truth, the capital insured should follow a declining loan that you are paying off month after month.
Some policies will exclude a specific type of death such as resulting from suicide, terrorist acts, war or even undisclosed dangerous sports. Most have an upper age limit for eligibility around 70 or 75.
Concerning permanent disability, there may be some exclusion clauses concerning addiction, abuse of medical prescriptions, refusal of medical assistance and personal aggravation of existing incapacity, to give a few examples.
Temporary disability is always subject to interpretation and is often a cause for conflict between lenders, insurance companies and clients. For instance, incapacity cover will exclude maternity, pathological [do you mean this?] problems, depression or back issues.