Although the new Mortgage Law will prohibit the obligation to hire insurance to grant a mortgage, this will not mean that financial products do not continue to sell insurance such as payment protection.
On the one hand, what the new legislation determines is that the client always be shown a mortgage offer without any product linked to one or several offers that, if they can contain different conditions, but with product linkage. Banks can thus offer proposals with discounts, usually discounts on the interest rate, if they hire these products.
The other way in which payment protection insurance grows is in its growth in the personal loans segment, especially in the highest amounts.
In all cases, its commercialization is based on selling the benefits of its coverage: the capital that remains pending from the loan in the event of death, temporary incapacity for work or unemployment. But all are limited and have several points not so positive that you have to analyze.
Beware of single premium insurance
The first point is related to how loans are amortized. The most common in Spain is that they are made by the so-called French method which implies that equal installments are paid throughout the life of the loan unless there are changes in the interest rate. This form of amortization implies that at the beginning of the loan is when more interest is paid and, therefore, less capital is amortized and at the end of the loan is when the capital is reduced more quickly.
In practice this assumes that these loans are more interesting when the loan operation starts and loses this interest when few years remain. To avoid this drop in hiring, it is a practice of some financial entities to market it as a single premium insurance; that is, the entire insurance is paid when you sign the contract for your mortgage. This form can involve certain limitations and problems. The first, the high amount, especially in mortgage operations which leads to even financing through the loan raising its amount. The second, if you anticipate the cancellation of the loan, you have the right to claim the proportional part of the premium.
Very limited protection
With all this it is clear that the insurance protection is limited in quantity despite its cost that is usually high. It is for the main coverage, the death coverage, but also for the rest. For illness, you have to read the conditions very well since not all the illnesses that can take you to the medical leave can be contemplated in your coverage. Likewise, unemployment coverage is limited in time.
Faced with this, life insurance covers all contingencies in a broad way, you can comfortably pay it periodically and update it to offer complete security for those you love most.