Receiving a home with a mortgage can be a potential cause for giving up the inheritance.
To avoid these types of situations, people can protect their heirs with a number of tools. One of them is the contracting of mortgage life insurance linked to the loan, an optional mechanism that covers the back of the heir in the event of death.
“By contracting life insurance linked to the mortgage, the client establishes insurance in favor of the bank, so that, in the event of death before paying the mortgage, the debt is satisfied”, explains Arantxa Goenaga, lawyer and partner of the law firm Circulo Legal Barcelona.
This instrument was very common a few years ago, since in practice many banks conditioned the loan to the contracting of this insurance. However, the 2019 Mortgage Law established that this practice was bank malpractice and clarified that taking out life insurance is voluntary.
“Although the bank insists that you contract its conditions, it is not mandatory to access any mortgage product to access the loan,” says the lawyer. In this sense, the client cannot be forced to sign any other type of insurance, except for damages, which is a sine qua non condition for the mortgage loan.
Contracting is, therefore, subject to the client’s decision. “Through life insurance, the bank protects itself against future defaults and heirs of the property do not inherit the mortgage,” explains Goenaga, who adds that, apart from death, life insurance “includes possible situations of disability that make the client unable to afford the mortgage debt ”.
How is it contracted?
As a general rule, there are two ways to purchase life insurance for the mortgage. The first of them is to contract it with the mortgage itself, like any other product linked to it.
“In return, the bank usually offers more attractive interests, which will depend on the number of extras that are contracted with the mortgage,” explains the lawyer, who points out that “another option is to contract it directly with an insurer.”
To know which one is more convenient, we must bear in mind “that in the final years of amortization, when less interest is paid, life insurance will be more expensive due to the greater possibility of death or disability,” Goenaga points out. In this way, it is possible that, even if discounts are applied, life insurance is cheaper by contracting it with an insurer.