When you buy a home with a mortgage, there is one cost you rarely look at closely: mortgage life insurance. You sign it in the rush of the escritura (the deed signing) and often never think about it again.
The problem is that this insurance can make up a significant share of your monthly mortgage payment. And in most cases it is taken out with the bank itself, without shopping around.
In this article, we explain in simple terms what this insurance is, what it covers and, above all, how you can save money without complicating your life or altering your loan agreement.
What is mortgage life insurance?
It is a type of insurance that guarantees repayment of the debt to the bank should the insured person die or become disabled as defined in the policy. In practice, it protects your family: if the worst should happen, your home will not be at risk because of the mortgage.
Although the law does not require you to have life insurance in order to take out a mortgage, almost all banks make it a condition for granting the loan or for applying the lowest spread.
What it usually covers
Coverage varies from policy to policy, but generally includes:
- Death: settles the outstanding debt with the bank.
- Disability: covers situations of incapacity, in accordance with the levels defined in the contract (for example, total and permanent disability).
- Supplementary cover: some policies offer extra cover at an additional cost.
Always read the terms and conditions, particularly the exclusions and age limits. That’s where most surprises hide.
Why you might be paying too much
Insurance taken out at a bank branch tends to be more expensive and less flexible than that offered by independent insurance companies. The premium (the amount you pay) also increases with age and the sum insured.
As the insurance runs for 20, 30 or even 40 years, a difference of just a few euros a month adds up to thousands of euros in total. It’s definitely worth comparing.
How to save on mortgage life insurance
1. Compare quotes from several insurers
Ask different insurers for quotes with the same sum insured and the same cover, so you compare like with like. Platforms such as Doutor Finanças help you gather several quotes.
2. Switch insurers and keep your mortgage
Since 2009, you have been able to transfer your life insurance policy to a provider other than your bank, provided that the new policy meets the bank’s requirements. You do not need to renegotiate your loan or change banks.
This is one of the quickest ways to ease the strain on your budget, as we mentioned in our article on how to reduce your mortgage payments.
3. Review the sum insured as you pay off the loan
As the debt goes down, the sum insured can follow it down, and so can the premium. Check whether your policy updates automatically.
4. Check whether the bank can penalise the switch
Some banks link a lower spread to taking out certain products, including insurance. Work out the overall figures: sometimes, saving on insurance can mean losing a spread discount. The overall balance has to come out in your favour.
This insurance is there to protect your family, and that protection shouldn’t be sacrificed just to save money. The aim is to pay a fair price for the same peace of mind.
Review your policy at least every two years and, if in doubt, speak to an insurance broker registered with the Autoridade de Supervisão de Seguros e Fundos de Pensões (ASF), the Portuguese insurance regulator. An informed decision today protects your budget and gives you peace of mind.
Raquel Correia
