For an Austrian mortgage you will be offered or required to take out an insurance policy. That raises at least three questions: what the bank requires, which risk you want to insure yourself and what the entire package costs. A low stated loan instalment does not fully answer any of these questions. This article concerns consumer credit within the scope of the HIKrG and does not assess any specific insurance contract.
Describe the function of each policy in one sentence
Our editorial recommendation: first ask which event is to be insured, who the insured person is and who would receive money in the event of a claim. Is it about the value of the building, a personal hazard or another security? Use the concrete product description instead of the collective term credit insurance.
Place the loan terms and insurance documents side by side. What sum insured, term or beneficiary is required for the financing? Which components are only offered additionally? If this is unclear, you can neither meaningfully review an existing policy nor sensibly compare another solution.
Separate classification of the loan package and mandatory insurance
§ 23 HIKrG distinguishes tying (Kopplung) and bundling (Bündelung). With tying the loan cannot be concluded separately from the other financial products; it is generally only permissible within the legal exceptions. With bundling the loan is also available separately, possibly on different terms. [PAKET]
For a relevant insurance paragraph 4 provides a special rule: the bank may require its conclusion in connection with the loan, but must accept a policy from another provider if it offers equivalent warranty performance. [PAKET] This does not imply an obligation to accept every policy described as cheaper regardless of its content. Nor does it mean that, as a rule, only the bank’s preferred insurance provider is an option.
Relate a comparison to the same requirements
Ask to be shown which characteristics are used to assess equivalence. Compare the offered solution with an existing or alternative policy having the same relevant key features. Also check the actual commencement of cover and possible gaps between the start of the loan and the insurance cover.
A mere monthly premium is not sufficient for comparison. Different terms, excluded events or altered benefits can be hidden behind similar-sounding names. Read the full documents or have any open points explained by a specialist. A general assurance that you will then be “covered for everything” should not replace your own review of the terms.
Make the package costs fully visible
Note when and how the insurance premiums would be paid and whether further costs or a financing arrangement are envisaged. Compare the loan alone and the actually offered overall package on a comprehensible basis. If an ancillary service affects the loan terms, that effect also belongs in the comparison.
This article does not claim that every premium must in every case be included in the effective annual interest rate in the same way. For your own payment planning you need, irrespective of that, all actual outflows that are envisaged. If the presentation is unclear, ask which costs are already contained in one figure and which are added separately, so that you neither forget anything nor add items twice.
Example: the monthly instalment is not yet the monthly burden
Fictitiously the stated loan instalment is 900 euros. An additional insurance premium to be paid is offered at 25 euros per month. For these two explicitly separate items this results in a monthly outflow of 925 euros; 25 euros over twelve months is 300 euros. The example is not a market offer and says nothing about whether the cover is appropriate. An alternative with different cover would not be equivalent merely because of a smaller figure.
Take changes to the loan into account
Ask before signing what would need to be clarified in the event of early repayment, a different lender or changed cover. Do not terminate an existing security on suspicion before the applicable conditions and the follow-up solution are established. The insurance contract and the loan can raise different questions of amendment or termination.
A good decision basis contains the required scope of security, the protection you want, the concrete policy terms and the complete package costs. You do not have to provide your own insurance advice from that. But you should be able to see which decision you are making, which comparison basis has been confirmed and which question still needs to be answered.