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Loan insurance provides an invaluable sense of security in times of uncertainty

Home loan repayments form a large part of the monthly expenditure of many families in Estonia. 

Property insurance provides peace of mind for both the borrower and the lender – because if something happens to the property, the insurer will compensate for the damage or make the loan repayments to the bank. But if the borrower is involved in an accident or falls ill, that is where loan insurance can be of assistance in repaying a loan.

Where home loans are concerned, banks tend to offer two types of insurance: property insurance and loan insurance. Real estate purchased with and forming the collateral of a loan is insured with a property insurance contract, the obligation to enter into which arises from the terms and conditions of home loans of the majority of banks. Whereas property insurance is usually taken out at first on the demand of the bank, as soon as the need to make a claim arises, people tend to realise that property should be insured primarily for their own peace of mind, both general and financial.

Far less often do people insure themselves. If unexpected events lead to financially hard times for a family, the borrower may find it difficult to meet their repayments and, in the worst case scenario, the family may lose their home.

However, a borrower can protect themselves against financial risks by taking out loan insurance, which provides an extra sense of security for their family should the borrower fall ill for an extended period, become unable to work or die. Less common, but also available, is additional unemployment cover. The insurer will make the loan repayments if the borrower is rendered temporarily or permanently incapable of working due to an accident or illness or if they are absent from work over a longer period due to their own illness or the illness of their child. If the borrower dies, the insurer pays off the entire loan.

Whether or not loan insurance will be of assistance in the case of a viral illness depends on the terms and conditions of the insurance in question. For example, Coop Pank home loan insurance covers loan repayments in the event that temporary incapacity for work lasts for more than a month – and this applies if you become infected with coronavirus. However, it will not cover loan repayments if a healthy person is forced into time off work due to e.g. quarantine.

Although insurance provides a sense of security, people often avoid entering into contracts because they do not want the extra outlay of monthly premiums. The amount of loan insurance payments ultimately depends on the age, gender, hobbies and field of work of the borrower and the insurer’s price list, but is usually between 15 and 25 euros per month. Coop Pank will add free loan insurance, which is offered in cooperation with If Insurance, to the home loan agreements signed as of July 1, 2019.

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