Insurance linked to mortgages, how do they work?

The risks associated with a mortgage are unlikely, but if they do occur, they are truly damaging. There is mortgage life insurance to cushion this blow, which comes into play when the insured’s life is cut short by death, illness, disability, unemployment, or other circumstances. We tell you how this insurance works and what its primary data are in Spain:

Mortgage life insurance, how does it work?

In the last fifteen years, 1,750 people or families, every day, have decided to start the process of purchasing a home through a mortgage loan. Mortgage-linked insurance is there to protect the insured’s assets in case his life takes a turn. Some people die unexpectedly, at an early or even very early age. Suppose they support the repayment of a mortgage loan. In that case, that death poses a severe problem for the family, which sometimes no longer can meet the loan commitments and, consequently, is in danger of losing the HouseHouse. This problem is what life insurance combined with mortgage solves, which acts in two key moments:

1. In the event of death or illness: the insurance will be responsible for paying the outstanding monthly installments of the person responsible for paying the mortgage in the event of death, lengthy illness, or disability.

2. If the income of the person who contracted the loan is in danger: the payment protection coverage assumes the payment of the mortgage for a time due to the interruption of income, for example, due to becoming unemployed.

Life insurance combined with mortgages acts as an anti-eviction tool by protecting assets against non-payment in the event of death or severe illness.

In this way, life insurance combined with a mortgage protects the assets of the person and often also of the family unit, which is not overwhelmed by the need to meet the needs of the loan. The possession of the HouseHouse itself is being protected, avoiding the loss of the HouseHouse with the payment.

The statistics of insurance-linked to mortgages

In Spain, approximately 3.3 million people or families are paying a mortgage and are covered by this type of insurance. Last year, 4,650 of these people encountered the misfortune of premature and unexpected death or disability that prevented them from continuing to meet their loan commitments. Still, they had insurance protection to avoid the loss of housing. On average, those payments amounted to around €28,000 or, if you prefer, 1.2 times the salary for the entire year of an average worker.

Mortgage-linked life insurance did its job, fundamentally, among relatively young people. It is logical since older people usually have already finished paying their loans, so it is less common for them to be still protected by this type of product. More than 40% of the people whose families were helped by the insurance last year were under 55.

Life insurance combined with mortgages is an insurance that is often spoken of in critical tones. However, it fulfills an essential social task. Any family member who has suffered the misfortune of losing ahead of a family can confirm this.

Mortgage-linked insurance, therefore, operates in a silent and little-known way because, by definition, the mishaps it deals with are relatively few. It renders an enormous service to those who need to use it. Obviously, there are pains that in life, especially in death, cannot be avoided. Mortgage-linked insurance can’t prevent pain, but it can at least prevent ruin.