Although taking out home loan insurance is not a legal obligation, it is a major condition for obtaining this type of credit. Prior to September 2010, borrowers were subject to the group contract of the lending bank. Since the entry into force of the Lagarde law, they can freely choose their offer thanks to the insurance delegation scheme.
What is the Lagarde law?
Are you considering applying for a home loan? Plan to take out borrower insurance, because banks systematically require coverage to grant this type of credit. Indeed, the mortgage loan insurance guarantees them the reimbursement of the amount granted in the event of death, disability or unemployment of the borrower.
Previously, you would have been forced to choose the group insurance of the lending bank to obtain a mortgage. The Lagarde law came to change this situation. This is the culmination of the reform of home loan insurance initiated by the former Minister of the Economy Christine Lagarde. Since September 2010, this law has given mortgage subscribers the freedom to choose coverage other than that of the lending institution. This is the principle of insurance delegation.
What changes did this law bring?
The insurance delegation basics were implemented by Law No. 2001-1168 of December 11, 2001, known as the Murcef Law. The latter prohibits tied sales which consist of offering products or services grouped together unless they are inseparable.
This provision was endorsed by the Lagarde law for mortgage loan insurance. This gives borrowers the right to refuse the group contract offered by the lending institution and to opt for coverage marketed by an independent insurer. It is most often a broker whose role is to find the offer that best suits its customers with partner insurers.
The Lagarde law thus makes it possible to increase competition on the borrower insurance market and to lower the prices charged by the players who operate there. This results in an improvement in the purchasing power of consumers. It should be noted that the delegation of insurance is not always more advantageous. It all depends on the profile of the borrower.
How does Lagarde’s Law work?
The Lagarde law for mortgage loan insurance applies regardless of the type of goods to be purchased. If you wish to take out a mortgage, you can take out cover with the insurer of your choice. However, it is essential that the selected offer has a level of guarantees at least equivalent to that of the group insurance of the lending bank.
The latter is not entitled to modify the terms that have been negotiated for the mortgage if you opt for the delegation of insurance. Concretely, he is prohibited from revising the interest rate upwards or downwards to encourage you to opt for his group contract. She also cannot claim financial compensation or new application fees.
How to benefit from it?
All consumers can benefit from the Lagarde law for mortgage loan insurance, regardless of the amount borrowed. However, it is important to emphasize that it applies only until the moment of signing a loan contract, because its terms will be indicated there. In other words, it must be used before becoming an owner. Current borrower insurance is not affected by the Lagarde law.
To benefit from the delegation of insurance, it is necessary to send the lending institution the pre-contract from the chosen third-party service provider and the table of guarantees. The latter must provide their response within 10 working days.
What are everyone’s obligations?
The Lagarde law establishes a single obligation for mortgage subscribers. The borrower insurance chosen from an external service provider must imperatively display at least the same level of guarantees as that of the group contract of the lending bank. If this principle of equivalence of guarantees is not respected, the latter may refuse the new contract. However, it is obliged to justify its decision within 10 working days.
The collateral equivalence criteria for home loan insurance are defined by the lending institutions. They must choose at most 11 elements from the list of 18 criteria set up by the CCSF (Financial Sector Advisory Committee). These concern in particular:
- The death guarantee;
- The PTIA guarantee (total and irreversible loss of autonomy);
- The ITT guarantee (temporary incapacity for work);
- The IPT guarantee (total permanent disability);
- IPP guarantee (partial permanent invalidity).
On the other hand, banks have been required to provide all home loan subscribers with a standardized information sheet since October 1, 2015. This document was initiated at the same time as the drafting of the Lagarde law in 2009. It aims to strengthen consumer protection by making information more transparent.
In detail, the standardized information sheet explains to a borrower the principle of loan insurance. It also brings to its attention the possibility of choosing cover other than the bank’s group contract without this impacting the rate of the mortgage. Therefore, this document must:
- Detail the guarantees included in the group insurance of the lending bank;
- List the criteria for equivalence of guarantees;
- Provide an estimate of the cost of home loan coverage;
- Indicate the proportion of the borrower’s insurance.
The standardized information sheet is therefore particularly useful in the event of delegation of insurance. It makes it possible to make a comparison between the group contracts of the banks and the offers of external insurers. You will then have the possibility of playing the competition and of take out home loan insurance at the best price.
Conclusion
If you need to know about the Lagarde law for mortgage loan insurance, it is important to know that it is a law that was created to protect borrowers from defaults on their mortgages. The law requires mortgage loan insurance companies to provide coverage for loans that are worth up to a certain amount, and it also requires these companies to have reserves in order to cover any future defaults.