Life insurance (monthly)

What it is Insurance of the borrower’s life and (often) ability to work, assigned in the bank’s favour. In case of death or serious disability, the insurer covers the outstanding loan balance — protection for both the family and the bank. The premium is usually monthly.

Why it matters to you Banks commonly offer a lower interest rate in exchange for life insurance. This turns the insurance from a pure cost into part of the pricing — which is why it has to be assessed together with the interest rate, not separately.

What to watch for

• Calculate the net effect: the interest saved versus the premium paid over the whole term. Quite often the rate discount is smaller than the premium and only rarely offsets it. So if life insurance is not mandatory at the bank you are considering, the decision “with or without” should be a conviction, not just maths. In practice, life insurance does not insure you but your heirs. If at the time of purchase you are single and have no direct heirs, it makes little sense. If an insured event occurs, the bank uses the life insurance to cover the remaining debt and releases the property from encumbrances. Your heirs then inherit assets free of encumbrances and no debt.
• Check whether the insurance is a condition for the advertised rate — if you cancel it, the rate may go up.
• See exactly what the policy covers (death only, or also disability and unemployment) and what the exclusions are.

In the LendingFree comparison report life insurance is shown as a monthly cost and as a factor in the interest rate, so you can see the true price of the “low rate”.