Bank forces to take its life insurance

14 posts in this topic

Hi everybody,

 

I am in the processing of buying a house.

I applied for credit for five banks and I eventually got a positive answer from a bank.

This credit from this bank has a relatively low interest rate, but they take my small apartment as additional security and on top of this I have to get a death insurance. So far was everything OK.

 

Yesterday the bank send me their offer for  death insurance and I find it a way more expensive than what I could get from check24.

I write back that I want to take another insurance with the same condition. But then got the respond that they expect me to take their insurance because they offered me a low interest rate.

 

I see this as an act of Kopplungsgeschäft, but at the same time, I don't want to lose the low interest rate.

Particularly now that the Notary appointment is in two weeks and there is no chance to find another creditor.

 

I though that I will not mention this Kopplungsgeschäft issue right now. Rather, I will wait for the payment. Once everything is settled and the bank paid the amount, then I will bring up this issue and try to replace the insurance with the cheaper one.

 

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It IS a Kopplungsgeschaeft,  Moonwave.But..you may have to swallow your pride given that you have no chance to find another creditor..

 

TWO tips apart from that: death is not the only way to cause hassle for your family in case you die (perish the thought) and the bank grabs your house

1. Have you checked out the situation in case you don´t actually die but cannot work because of serious illness/invalidity? ie you cannot earn money to pay the bank

 

2. Check your personal liability insurance/private Haftpflichtversicherung? How well are you insured in case you mess up and end up owing someone (or their health insurance or whatever ) xxx of money and that can interfere with your mortgage payments ?

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Personally I think it depends on what you want.  If you just want a mortgage, take one with a higher interest rate instead.    I would also consider how long that insurance policy is and its obligations.   If it is going to mean decades of commitment, I'd definitely just swallow higher interest.

 

I am not sure their stated rationale is accurate.   Making a life insurance policy a condition is about risk of you not paying, not interest rates (and obviously a lower rate would reduce the risk of non-payment).

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Somewhere I read this was not legal.  I cannot for the life of me recall exactly.  But I am very sure I read it somewhere recently.  A financial institution cannot force a customer to take their life insurance policy offer to the effect that when not accepted, the interest rate increases.

Moonwave, do some google research. 

 

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I've received several mortgage loans in both the US and Germany as well as a commercial loan for an HOA.  I can tell you the bank can stipulate just about anything they like before handing over their money to you.  Especially if your credit is borderline.  Some banks require you acquire their credit cards or use their other banking services before they'll deal with you.  The loan I got for our HOA, the bank required us to raise our monthly HOA fees.  No particular reason, they just said raise it or no money.

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On 11/30/2018, 2:41:46, BayrischDude said:

A financial institution cannot force a customer to take their life insurance policy offer to the effect that when not accepted, the interest rate increases.

 

It's actually called Mortgage Life Insurance and the lender is the beneficiary.  You die, they get their money.  I'd ask how often the insurance gets reviewed and recalculated as the principle gets reduced.

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I think it'd be called term assurance in the UK.  I always think that is otherwise extremely morally dubious.  That any third party (outside family etc) can hold a stake in an insurance policy that pays on death.   Not sure why it's ever allowed really.

 

When I started out in the UK, there was some sort of short term policy that you had for a very short time that reflected the risk to the lender was high at the start especially on low deposit loans (and when interest rates were high at about 15%).

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So what if you take out a mortgage, then the market bombs, then you die leaving your family with negative equity.

Read John's post above, says it all.

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21 minutes ago, swimmer said:

I think it'd be called term assurance in the UK.  I always think that is otherwise extremely morally dubious.  That any third party (outside family etc) can hold a stake in an insurance policy that pays on death.   Not sure why it's ever allowed really.

 

When I started out in the UK, there was some sort of short term policy that you had for a very short time that reflected the risk to the lender was high at the start especially on low deposit loans (and when interest rates were high at about 15%).

Just for info! My partner Nicole´s mother was married twice - each time to a high level property salesman and both husbands died before their mortgages were paid off and both times Nicole and brothers and mum had to downsize and  leave the property to the thieving hands of the banks:(

Why? Because neither of the husbands - despite their profession - had the foresight or the will to take out a term life insurance when buying their own houses...incredible.

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I know a woman whose husband died a couple of years ago. It was unexpected, 50 yrs old, heart attack. They did not own property but he had debts. She was well advised to refuse the inheritance but there was one bank where they had a joint account that still had her on the hook. Pure luck that exactly that bank had made him take out insurance for the loan. The loan was paid off and she avoided financial ruin.  None of us are planning on dying prematurely but odds are it will happen to some of us.

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@Moonwave Do you actually have a family that depends on you? If you don't, ask yourself whether you actually need life insurance. 

 

If you have dependents, life insurance is pretty much a must, as my aunt and two cousins painfully realized when my uncle died unexpectedly at 45 being the family's sole bread-winner. My mom and my other uncle felt obliged to support them financially for years, and they did so. Had my aunt not had such generous in-laws, things would have been much worse for the whole family than they were.

 

I, myself, don't need it or want any sort of life insurance as I have no dependents. If I die unexpectedly, my heirs will get less than if I did, but that's something I don't care much about as they don't live in my mortgaged flat and they don't depend financially on me.

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Also, if you have a company pension you will probably have a "death in service" benefit that could be up to 4 times your salary.

But as John G stated, what if you are struck down by an illness and can't work, then you would need a critical illness policy.

Do your research and speak to several advisors before deciding.  Good luck.

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