How to Review a Home Life Insurance Policy: Advice from the Experts

Mortgage Life Insurance helps ensure your financial security and that of your family by guaranteeing the repayment of your mortgage. Knowing how to review your Mortgage Life Insurance policy is essential to making an informed and sound decision.

With that in mind, we've compiled the most important points you should consider before signing the contract:

• IAD and ITP Coverage;
• Exclusions;
• Safe Capital;
• Coverage deadline.

Throughout this article, we will explain how to evaluate each of these four points and why they are important to ensure that you have insurance that meets all your needs.

1. Check whether the disability coverage in your Mortgage Life Insurance policy is IAD or ITP

With regard to disability coverage, there are two main types of protection: IAD (Absolute and Permanent Disability) and ITP (Total and Permanent Disability).

In the case of Total and Permanent Disability (TPD), the Insured receives the Insured Amount in situations of very severe disability, in which he or she is dependent on a third party to perform daily activities.

In the case of Total and Permanent Disability (ITP), the insurance benefit is paid when the insured is permanently and definitively unable to perform their professional activities, with no prospect of improvement.

To determine whether you should choose IAD or ITP for your Mortgage Life Insurance policy, the main question you should ask yourself is whether you can cover the cost of the loan (and any other ongoing expenses you may have) without working. If the answer is yes, it’s a sign that you’re in a strong financial position, and in such cases, you may opt for IAD.

In this analysis, it is important to note that some insurance companies assign disability percentages to each of these types of coverage. In such cases, the insured amount is paid only when the degree of disability determined is equal to or greater than that specified in the policy terms.

2. Review the exclusions set forth in the Mortgage Life Insurance policy

To fully understand the extent of your insurance coverage, it is just as important to carefully review the exclusions as it is to analyze the coverage you’ve purchased.

As a general rule, the most common exclusions—which apply across all types of coverage—relate to situations involving alcohol and drug use, participation in riots, and the commission of crimes. However, participating in extreme sports, for example, is included on the list of exclusions for some insurance policies.

In this analysis, it is important to determine whether any of the exclusions described in the Mortgage Life Insurance policy are incompatible with your lifestyle.

For example: if you regularly participate in adventure sports, such as river canoeing, an insurance policy that excludes rafting, canyoning, or canoeing could be a problem for you

In these cases, it’s best to discuss the matter with the insurance company so that a solution can be found that meets your needs.

3. Review the Insured Amount in the Mortgage Life Insurance Policy

When it comes to the insured amount, there are two important factors that require closer examination: the percentage of the outstanding principal covered by the insurance and the method used to adjust the amount. Let’s take a look at what you should keep in mind:

– Percentage of Insured Capital

In the event of death or disability resulting from an accident or illness, the Insurer guarantees payment of the Insured Amount.

As a general rule, this capital is equal to the amount of the loan taken out from the bank to purchase the property, thereby settling the debt.

There are, however, contracts that guarantee, through the loan insurance, only a portion of the outstanding balance with the bank. For example: instead of covering 100% of the loan amount, the insurance coverage covers only 50%. In these cases, the monthly insurance premium may even be lower, but the financial protection provided by this insurance is also less.

Therefore, rather than focusing on the monthly payment you make, it’s more important to review the insured amount and determine whether it covers the total amount of debt you owe the bank.

– Update to the Insured Amount

Depending on the insurance company, there are two options for updating the coverage: automatic or manual. The insured amount can be updated automatically as the loan is paid off, or manually, which means the update is requested and set by the insured.

In cases of manual adjustment, the Sum Insured may be adjusted to the amount you owe or to the amount you choose. If the amount you set is greater than your outstanding balance with the bank, there will be a remaining principal balance that, in the event of disability or death, will be paid to the Insured or their beneficiaries.

4. Find out the expiration date of the coverage under your Mortgage Life Insurance policy

Another important point to note in a Mortgage Life Insurance policy is the expiration date of the coverage.

To evaluate this point, it’s important to know when your loan agreement expires. The goal is for the dates to align so that you have access to adequate coverage for the entire duration of your loan.

For example: You have a loan that extends until age 85. In the insurance contract, death coverage extends until age 85, but disability coverage (whether ITP or IAD) ends at age 70. It would be more beneficial if this coverage also extended until age 85.

Do you need expert assistance in reviewing your mortgage life insurance policy?

Reviewing your Mortgage Life Insurance policy helps you avoid unnecessary mistakes and ensures you have the best coverage tailored to your actual needs, while paying only for what you need.

An accurate diagnosis requires experience and knowledge of the various insurance solutions available on the market.
With over 25 years of experience and ranked among the TOP 5% of Portugal’s Best SMEs, EXS has a team that specializes in analyzing mortgage life insurance contracts.

Request your quote today and get a personalized insurance proposal tailored to your profile.