What happens to life insurance when I pay off the housing loan?

Pay off part of a housing loan early reduces the amount still in debt. But what happens to the life insurance associated with the loan? The answer is related to the evolution of the debt capital and the policy conditions.

When you amortize part of the housing loan, the debt amount decreases. The insured capital of the life insurance associated with the loan should follow this evolution, according to applicable rules.

The credit institution must inform the insurer about the evolution of the debt amount so that the insured capital is updated.

What happens to the safe capital?

Imagine you took out a 200,000 euro housing loan. Over the years, through monthly payments, the debt capital decreases. The life insurance associated with the loan follows this evolution.

If you make an early partial loan amortization, the outstanding capital becomes lower than it would be without this amortization. The secured capital should reflect this change.

And what about the insurance prize?

The safe capital update may affect the premium. The Bank of Portugal explains that the evolution of safe capital should be reflected in the premium calculation. However, how the premium evolves also depends on the policy conditions and the insured's characteristics.

That's why it's not correct to assume that a specific amortization will cause the exact same premium reduction.

Do I need to ask the bank to update the insurance?

The credit institution must inform the insurer about the debt amount's evolution, so the insured capital can be updated.

Still, after a significant payment, it is advisable to confirm if the information was updated and check the insurance conditions.

What if you pay off the entire loan?

When the housing loan is fully paid, the loan that was guaranteed by the insurance no longer exists. At that moment, it is important to confirm with the insurer what happens to the policy.

Depending on the contract, the need to maintain that policy linked to the credit may no longer exist.

If you have other goals for the insurance, you should directly assess the policy terms and the possibility of keeping or changing it.

Is it worth paying down just to reduce the insurance?

This decision must be carefully analyzed. A payment can reduce the outstanding capital and, consequently, future interest on the loan. It can also affect the associated insurance.

But using all savings to pay off debt can reduce your financial reserve.

Before amortizing, it is important to consider:

Available capital

Emergency fund

Interest rate of credit

Potential costs associated with early repayment

Impact on insurance

Other financial needs

Can I partially amortize the loan?

Yes, it is possible to make a partial advance reimbursement, subject to the rules and conditions applicable to the contract.

The amortization can reduce the debt capital and may affect the installment or the term, depending on how the operation is carried out and the agreed conditions.

Therefore, before amortizing, it is important to ask the bank for a simulation of the operation's impact.

Make a simulation

Want to know if you can save on your home loan insurance? In addition to assessing the impact of a repayment, you can also compare proposals from other insurers and check if transferring the insurance allows you to reduce the monthly amount you pay. Do a free and non-binding simulation and discover the available alternatives for your case.

FAQ

Does life insurance decrease when I pay off the loan?

Safe capital should follow the evolution of the debt amount, according to applicable rules.

Does a reduction in amortization automatically reduce the premium?

The secure capital update may affect the premium, but the exact effect depends on the policy conditions.

Who informs the insurer about the amortization?

The credit institution must inform the insurer about the evolution of the debt amount.

Can I cancel the insurance when I finish paying the house?

When the credit is fully paid, the loan to be guaranteed no longer exists. Confirm with the insurer the applicable policy conditions.

Is it better to pay off or keep the money?

It depends on the financial situation, interest rate, available savings, and the client's goals. There is no one-size-fits-all answer.