Taking a loan involves many legal, financial and technical procedures. Much depends on the type of loan itself. However, the recommendation (or requirement) to the borrower to insure their lives and health is almost always the case. Life insurance with auto loans observed in banking practice very often. And additionally often insure the car itself. The auto insurance system is called Cargo.
It should be emphasized that Cargo is engaged in insuring cars and other vehicles. The life and health of a person is insured by the firms of another system.
The essence of life and health insurance
A car purchase credit agreement may automatically include an insurance clause. And maybe this issue is negotiated in a separate order. In fact, the question of insuring the life and health of a borrower, the lending object itself, and occasionally the life and health of the guarantors goes far beyond the scope of a car loan. Thus, in the field of mortgage lending, the contract between the bank and the client also provides for insurance of the loan recipient. Why it is necessary for the bank, probably, obviously. At the financial office the main interest is to minimize the risks. Disease, accident, traffic accident – all these terrible things lead to temporary disability, complete disability, and even to death.
Who then will pay off with the bank, seeking to return their money? Guarantors and relatives are not a sufficient and reliable guarantee in terms of money back. But guarantees from a third-party insurance company can be considered as sufficient protection against possible costs. What is the insurance procedure and what are the options for its registration? When the borrower is preparing to take out a loan, the bank employee will almost certainly immediately offer two insurances – so to speak, the borrower’s person and the loan object (this article deals with the car). Why for sure? Yes, because now there are more and more banks, where, when taking a loan, a client is not even asked if he / she wants to conclude an insurance contract.
This is especially true of the life and health of the borrower. As a rule, even a separate agreement on this matter does not constitute. Just in the main loan agreement there is a special clause concerning the insurance issue. It must be said that the insurance of one’s life and one’s health is an exceptionally free will of each client. You can refuse it. But the insurance of the object of the loan is quite possible to make a mandatory item for the approval of the loan request. After all, here we are talking directly about the property acquired with the money of the bank. Cargo is very often mentioned in credit agreements on the issuance of money for cars. For a bank, including a client in a Cargo system means that, say, hijacking a car will not lead to costs. So, the organization is fully entitled to dictate its terms here. But the man himself insures by his own decision. So officially announced.
Subtle insurance features and conditions of banks
But in fact, many customers follow bank recommendations, not really weighing the pros and cons. Since in case of persistent refusal of the client to insure the bank may issue such decisions:
- car loan (like any other loan) will not be issued at all;
- the loan was approved, but only at sufficiently high interest rates and with a mandatory high down payment (the increase is somewhere at 3% and 10%, respectively);
- loan period is shortened, which again increases monthly payments.
Nevertheless, the borrower can choose a lot more as part of the need to insure. Life insurance for car loans is possible either through a bank or through an independent third-party company. In the first variant, no organizational work is required from the client. The bank’s specialists themselves pass on the client’s data to the insurance company-partner, after which the company draws up the insurance contract. The client will only need to sign it. In the second variant, the borrower selects the insurance company and concludes an agreement with it, after which it transfers to the bank employee a certified copy of this agreement.
We can say that the second option, though more troublesome, but also more acceptable. The fact is that banks are interested in obtaining the maximum percentage of profits. Therefore, often such insurance companies are specially selected, where the conditions of the insurance contract for the client are not the most favorable. It is better if the person himself takes the trouble to analyze several companies in order to choose the most suitable one. Then you can choose the amount of insurance. Actually, this is the essence of this process. The client deposits a certain amount into the account of the insurance company (or the account of the loan body, if the insurance company is accredited by the creditor bank), which is used for its intended purpose in the event of an insured event – the costs are paid.
For example, you can get some or all of the cost of a car crashed. Or, thanks to insurance, the loan will be extinguished while the borrower is temporarily disabled. The size of the insured amount may vary (we consider in the framework of the auto loan):
- the full market value of the car – the borrower draws up insurance, the price of which is equal to the price of the selected car;
- the size of the insurance is equal to the size of the loan (this option is mainly offered in the bank);
- the amount of insurance is determined by the balance of interest on the loan.
Be sure to say about the term of insurance. The bank always insists on purchasing an insurance policy for the entire maturity of the loan. For the institution this is another money back guarantee. However, if the client will be more convenient, you can opt out of this option and choose a long-term method. That is, the insurance policy holder will renew it every year. The prolonged method is also good because it is most convenient for him to suddenly refuse the services of this insurance company. For example, to terminate the contract with one office and select another.
What will self insurance do?
It is necessary to mention that in the insurance companies the system of interest charges works. That is, upon the occurrence of the insured event, the client receives more than he paid for the insurance. This positive difference depends on several factors:
- how many people paid the insurance company;
- what exactly was insured against;
- how much time has passed from the moment of execution of the insurance contract to the insured event.
For example, if the insured event according to the latest statistical analyzes is rare, then the coefficient for it will be high. And if it happens often, the coefficient will be low. In insurance companies, too, do not want to endure unnecessary losses. The same principles work in the Cargo system. For example, if some brand of car is stolen especially often, then the insurance coefficient for such a case will be very small. Then it is recommended not to count on high interest, making a small amount, and immediately invest money, approximately equal to the cost of the purchased car. At the very least, there will be a real return on insurance.
But if the statistics say that such a brand is almost never stolen, then this car can be insured against theft with relatively small money. After all, the insurance company will probably agree to conclude an agreement according to which the victim will receive many times more compensation. And, of course, insurance firms take inflation into account. Cargo even uses a special inflation coefficient. By the way, when concluding an insurance contract “inside” of a bank loan agreement, many such subtleties are not taken into account. Because insurance is considered simply as part of the loan. And this part should be fixed to calculate the amount of monthly payments and other things.
Benefit from insurance policy
Nevertheless, the life insurance of a borrower with a car loan is largely beneficial for the client. Moreover, there is a benefit for all three parties (client, bank, insurance company). What is it?
- for an insurance company: receiving insurance premium payments, the size of which is either calculated individually and depends on many factors (insurance object / subject, age, gender, work, lifestyle, etc.), or is fixed and is formed by multiplying the insurance premium by a certain coefficient (usually, about 2%). Banks use the second option;
- for a bank: minimization of risks and guaranteed return of funds due to an insurance contract, as well as an increase in the size of the loan (hence, an increase in interest income) and a small commission from the insurance company;
- for the client: upon the occurrence of the insurance situation and the impossibility of returning the money to the bank due to this, the borrower will not become a debtor, since the insurance office will return the money for him. Solid insurance can not only return the bank debt, but also financially provide the borrower for a sufficiently long period.
The negative side of insurance and options for refusing it
Despite all these advantages, in practice the most unprofitable life and health insurance when taking a car loan is for the client. Why? Yes, for the most obvious reason – the insured event does not occur. Of course it’s good. Who wants to be ill, to cure, to be on the verge of death? But the insurance money has already been paid. After repayment of the loan, of course, it is impossible to return them. But there is one more minus, which has not yet been mentioned. If, with ordinary insurance, the borrower pays the required amount, and that’s all, in the case of a loan, this amount is usually added to the loan amount. So, the client also pays annual interest for it. Refusing insurance, as already mentioned, is problematic due to the policy of banks. But if, after all, the decision is solid, then there are three options:
- clearly, loudly and clearly, at the consultation stage, refuse insurance;
- If the loan agreement with automatic insurance is already concluded, then the client should have the right to terminate the insurance contract within a certain period after the conclusion of an agreement with the bank. Usually this period varies from 3 months to six months;
- If the bank goes into a deaf refusal, or all the deadlines are long gone, you can take the risk of filing a lawsuit. However, it is recommended to do this with the support of a good lawyer (lawyer), since the court almost always takes the side of the bank. Due to the cost of this option, it is worth resorting to it only when it comes to really quite a lot of money.
Refund for insurance policy
Cancel a contract with an insurance company easily. But how to return the money invested in the policy? Here the precedent is of paramount importance that the bank actually forced the client to insure. Otherwise, the client would not get a loan. If a person, while taking a loan, chose the option of lending with automatic insurance of the life and health of the borrower, then he is unlikely to get his money back. Of course, a free choice of the client is necessary, sort of, to prove, but it has already been said, whose side is the court in most of these proceedings. So, if you want to return your funds from the insurance office, the client can go again in three ways:
- Appeal to Rospotrebnadzor. When the contract is not more than a year, this authority will consider the application from the consumer. And if he considers that in points of the credit agreement the consumer has been violated in his rights, the bank will be held administratively liable and the insurance company will be obliged to return the money to the client.
- You can try to solve the issue of refund for insurance with the bank itself. For this you need to make a written claim.
- And again going to court, only this time with a complaint against the insurance office. With the claim, a number of other documents are required: a loan agreement, insurance policy, proof of payment for insurance. Return is unlikely.
Overview of banks that do not require insurance policy
It must be said that even with a successful return of their funds invested in the insurance policy, the borrower will not receive the full amount, but with the deduction in favor of the bank. This deduction is considered to be paid for agency mediation. After all this, it becomes clear that insurance is a responsible matter that requires an informed decision. There are banks that do not make insurance a prerequisite. Many, on the contrary, put. The Cargo system is generally extremely popular in the Russian banking environment. Although just Cargo neglect and should not be. Since insurance can always be extended for a period longer than the repayment period of the loan. Then a person, if suddenly something, can at least get a cash equivalent for the lost auto. At the end of the article, a table is required where some banks are indicated that do not consider the life and health insurance of the client as an obligatory condition for lending. And, accordingly, what on this background they offer It is seen that the interest is very high. But, as already mentioned, each client must decide on the insurance issue independently, weighing all the pros and cons. Whether Cargo or life and health insurance. This article is written to help those who are faced with a similar problem.