Investment approach
Mortgage insurance in Spain: what the bank may require
The bank may require home insurance and a policy securing the loan, but must accept another insurer's policy on equivalent terms. A worked comparison of a discounted package against separate policies.
On a mortgage in Spain the bank may require two things: damage insurance on the mortgaged home and a policy securing performance of the loan obligations (art. 17.3 of Ley 5/2019, the mortgage credit law). It must also accept the policy of any other insurer on equivalent terms, at signing and at each renewal, and may not charge for checking it. Other products the bank may only offer, usually in exchange for a discount on the rate.
What the bank may require and what it may only offer
Ley 5/2019 prohibits tied sales (ventas vinculadas), where the loan is granted only together with another product (art. 17.1). The exception for insurance is written in expressly: the bank may require a policy securing performance of the loan obligations, damage insurance on the mortgaged property and other insurance provided for by the mortgage market rules (art. 17.3).
The practical conclusion follows. A policy that secures repayment of the loan, for example the borrower's life insurance in favour of the bank, the bank may set as a condition, but it cannot impose its own insurance company in particular. Everything else belongs to bundled sales (ventas combinadas): they may be offered if the bank shows the terms both with the package and separately, with the difference in price (art. 17.6–17.7).
| Product | May the bank require it | Must it accept another insurer's policy |
|---|---|---|
| Damage insurance on the mortgaged home | Yes | Yes, on equivalent terms |
| Policy securing performance of the loan | Yes | Yes, on equivalent terms |
| Other insurance and products in the package | No, only offer | Declining them only changes the discount |
| A fee for checking someone else's policy | Prohibited | Not applicable |
What wording of the requirement is in the offer can be seen in the FEIN and the FiAE (the standard information sheet and the standard warnings sheet), which the bank hands over ten days before signing. How to prepare is covered in the article on the meeting with the bank.
How the bank ties insurance to the rate
The discount on the rate for insurance, salary payments and cards is called a bonificación. It is not a gift but part of a bundled offer: if the borrower later gives up a product, the bank may restore the rate without the discount, if the contract says so. That is why the package is compared as a whole, not by the price of a single policy.
The TAE (annual percentage rate) in the FEIN includes the costs linked to the loan and helps compare offers from different banks. But it will not show what happens to the rate if the insurance is dropped in three years; that is visible only in the text of the contract.
How to compare the bank's package with separate policies: a worked example
Worked example, not a forecast. A loan of 300,000 € over 25 years, policy prices and rates conventional.
| Option | Rate | Repayment per year | Insurance per year | Total per year |
|---|---|---|---|---|
| Bank package: life 600 € and home 300 € | 3.0% | about 17,072 € | 900 € | about 17,972 € |
| No package: another insurer's policies 350 € and 200 € | 3.5% | about 18,022 € | 550 € | about 18,572 € |
In this example the bank's package comes out about 600 € a year cheaper, although its insurance costs 350 € more. With a different rate gap or different policy prices the answer changes, so each option is calculated on its own figures. The repayment for your own amount and rate is easy to work out in the calculator.
What to check in the policy before signing
A comparison by price does not show the main thing. Before signing, look at:
- Who the beneficiary is and for what sum: whether the cover falls together with the outstanding debt.
- Exclusions: age, health, occupation, living abroad.
- The excess and the payout procedure on a claim.
- The term, the procedure for renewal and termination, whether the premium is single or annual.
- For home insurance: the sum covering the building and what is included, and what the policy of the comunidad de propietarios (owners' association) covers.
- What happens to the rate discount if the insurer is changed.
If the loan is taken out by two people, the policy securing the loan is usually discussed for both borrowers; more in the article on the joint mortgage. Which insurance a property needs without a mortgage and during a renovation is described in the article on property insurance.
What happens to the insurance on early repayment
On early repayment of the loan the ancillary insurance contract with the bank as beneficiary ends, and the borrower is entitled to the unused part of the premium (art. 23.3 of Ley 5/2019). If the policy needs to be kept, the borrower tells the insurer so expressly and names a new beneficiary. Early-repayment fees are covered in the article on early repayment.
When the bank's package does not fit
A package with a discount does not suit a borrower who plans to repay the loan soon or to change banks: the annual premiums for the package may not be offset by the discount over a short period. Nor does it suit someone who values the freedom to change insurer: dropping a product restores the rate without the discount.
More care is needed with a single premium for a multi-year policy included in the loan amount: the borrower pays interest on it too. Such an option is discussed with an abogado (lawyer) or an independent insurance broker before signing.
Questions and answers
Is life insurance mandatory for a mortgage in Spain?
The bank may require a policy securing performance of the loan obligations, and the borrower's life insurance can play that role. But it can be taken out with any insurer on equivalent terms, not only with the bank.
Can the bank refuse if you bring insurance from another insurer?
No, if the policy is equivalent in terms and cover. Under art. 17.3 of Ley 5/2019 the bank must accept the alternative policy at signing and at each renewal and may not charge for checking it.
What happens if you drop the insurance after getting the rate discount?
If the discount is tied to a product in the contract, the bank may restore the rate without it. This is checked in the FEIN and the draft contract before signing.
What is a mortgage bonificación?
A discount on the rate for buying additional products from the bank: insurance, a salary account, cards. The bank must show the loan terms both with the products and without them.
Is money for the insurance refunded on early repayment?
The ancillary policy with the bank as beneficiary ends, and the borrower is entitled to the unused part of the premium under art. 23.3 of Ley 5/2019, unless they decide to keep the policy.
