OMM Newsroom
People taking out bank loans often encounter the question of insuring their loan obligations. For mortgage or consumer loans, arranging life or property insurance is intended to protect borrowers against unforeseen circumstances. However, failure to review contract terms carefully can later lead to serious disputes between customers and insurance companies, and even court proceedings.
What does loan insurance cover, and what should borrowers look out for before signing a contract?
Bank expert Emin Karimov told “Operative Information Center-OMM” that the main purpose of loan insurance is to insure a person's loan obligations:
“When a person takes out a loan, they also sign an insurance contract. For example, a mortgage may include both life and property insurance. Life insurance can cover death, the onset of a first-, second- or third-degree disability, and the full or partial loss of working capacity. However, exclusions such as chronic or oncological diseases may also apply. The insurance company assumes responsibility for the loan obligation and, if an insured event occurs — for example, if the borrower dies or becomes disabled — covers all or part of the debt, such as 60-70%, because of the loss of the borrower's ability to pay.”
The expert also discussed the possibility of getting insurance premiums refunded when a loan is repaid early:
“For example, a person takes out a 24-month loan but repays it in full within nine or 10 months. In that case, the customer has two options: keep the insurance contract in effect or request a refund of part of the premium paid for the unused period.”
Emin Karimov also spoke about new developments in the loan insurance market and the rates being offered:
“The percentage of the loan covered depends on the selected insurance package and the premium paid. For example, by paying a certain amount, it is possible to insure 100% of the loan, while a lower premium can cover 80% or 60%. The introduction of unemployment insurance and related coverage is also being planned, which is a very positive development. For instance, someone takes out a loan to pay their child's tuition but loses their job two months later. Unemployment insurance can allow the insurance company to make the monthly payments or repay the loan on the borrower's behalf, without damaging their credit history. Such products are brought to market after agreement between the bank and the insurance company.”
The expert stressed that borrowers should be careful when signing insurance contracts:
“Some customers refuse insurance, which can lead to problem loans later. But the biggest problem is that people sign insurance contracts without reading the terms. A person may assume they are insured, only to discover after an incident that it is not covered by the policy. This can cause serious disputes between the customer and the insurance company and create a negative perception of the insurance system as a whole. When signing an insurance contract, people should carefully check which events are covered, what percentage will be paid and what the deductible amounts are. They should ask a specialist about anything that is unclear. Reviewing the terms in advance can prevent future disputes and court proceedings.”
