Buying a home is often a long-term commitment, especially for those who need a mortgage to make it possible. This process can involve several steps, including the requirement for life insurance, which, as Deco explains, “is generally a mandatory condition in Portugal for mortgage approval.”
In this week’s Deco Alert article, we clarify everything you need to know about life insurance requirements when securing a mortgage in Portugal.
The weekly Deco Alert column, provided by Deco – the Portuguese Association for Consumer Protection* for idealista/news, is designed for all consumers in Portugal, including international buyers. Let's look at the following scenario:
My partner and I are planning to buy a home. We’ve already identified a few apartments and started meeting with different banks to understand how mortgages work here. One thing that stood out during our meetings with three banks was the life insurance requirement. Is taking out life insurance truly necessary, and is it essential to obtaining a mortgage?
While life insurance isn’t legally required, it serves as an extra layer of protection for you and the lender. In most cases, banks in Portugal do make life insurance a mandatory condition for approving a mortgage.
Typically, the life insurance required by banks covers the risk of death of one or more insured individuals. It can also include additional coverages, such as disability, accident, or even unemployment.
The saying “better safe than sorry” rings true here, as certain risks can have serious financial implications. To minimise potential impacts, banks ask borrowers to take out life insurance so that, in the event of a claim, the bank is covered by the insurer.
Although it’s intended as a safeguard, life insurance is often seen as an extra cost added to the mortgage. However, it’s best to view it as a guarantee for both you and the lender.
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How to choose an insurance provider
By law, you’re always free to choose an insurance provider, meaning you can arrange the insurance with any company. However, many banks offer their own proposal and, in return, reduce the mortgage’s spread (the bank’s profit margin).
It may therefore be worthwhile to consider the bank’s proposal. Do the maths and request a simulation of the repayment amount with the bank’s proposed insurance as well as one excluding it.
This comparison isn’t as straightforward as it seems, as you’ll need to consider the projected premiums over the course of the mortgage.
Deco advises you to fully understand the product before committing, including the various coverages offered, and to gather all the information needed to make the best choice in life insurance.
Supported by Deco. Contact us at deco@deco.pt or by phone at 21 371 02 00. You can also schedule a Skype appointment. Follow us on Facebook, Twitter, Instagram, and LinkedIn.
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