How Does Compulsory Insurance for Mortgage loans Work?

How Does Compulsory Insurance for Mortgage loans Work?

Mandatory insurance for mortgage loans seeks to protect the insured in the event that due to some unforeseen event, contemplated in the policy, they cannot continue paying their installments. Some of these insurances are required by law. Others, despite not being contemplated by law, may be part of the policy of the financial institution to grant credit. Next, we will tell you more details about the mandatory insurance for mortgage loans.

In this Content you will Find:

  1. How does Mortgage loan insurance work?
  2. What is the mandatory insurance for mortgage loans?
  3. Other insurance to protect your credit
  4. Is it mandatory to contract insurance for mortgage loans with the bank?

How does Mortgage loan Insurance Work?

Insurance for mortgage loans are solutions designed to protect you from natural risks or in the event of facing unforeseen circumstances that prevent you from paying off your mortgage debt with the financial institution.

Some of these situations are related to the person who acquires the credit such as death, permanent disability or loss of employment. Other situations are associated with the damage that the property may suffer in the event of events such as earthquake, fire, water damage, among others.


What is the mandatory insurance for mortgage loans?

In accordance with article 101 of the Financial Statute of Colombia, the properties that have been mortgaged to guarantee a loan must be insured against the risks of fire and earthquake. This must be for its commercial value and during the entire term of the credit.

In this sense, it is mandatory to have home insurance when acquiring a mortgage loan or a housing lease with a financial institution. This insurance will cover the debt you have pending with the bank in the event that the property suffers accidental, sudden and unforeseen damage as a result of fire or earthquake.


Typically, in addition to having the basic fire and earthquake coverage, other coverage is included. For example, explosions, hurricanes, aircraft crashes, water damage, among others. The coverages vary depending on the insurance company and the plan you choose.

Other Insurance to Protect Your Credit

In addition to home insurance for debtors, companies have designed different types of insurance to protect your assets and that of your family when acquiring a debt. Some of these insurances are required by credit institutions to grant credit. Get to know them below:


Debtor life insurance

Debtor life insurance is included in the compulsory insurance for mortgage loans. It is a protection mechanism that consists in that if, for any reason or circumstance, the insured dies or suffers a total and permanent disability, the insurance company will assume the payment of the outstanding debt of the loan. The value of this insurance depends mainly on the age of the insured person and the balance of the debt.

It may seem that this type of insurance is beneficial only to the bank. However, it must be taken into account that in the event of death or failure to pay the installments, the debt falls on the legal heirs. Therefore, with a debtor life insurance you guarantee the liquidation of the obligation avoiding leaving debts to your heirs.

Unemployment insurance

Another mandatory insurance for mortgage loans that your financial institution may require is unemployment insurance. Through this, in the event of temporary disability or unemployment of the insured, the insurance company will comply with the debtor’s obligations to the bank.

Is it mandatory to contract insurance for mortgage loans with the bank?

The bank or financial institution with which you wish to acquire the credit may require you to contract different insurances as a condition for granting the credit. And despite the fact that, as we mentioned before, the only insurance required by law to acquire a mortgage loan is fire and earthquake insurance, the bank may have an internal policy that requires the contracting of other insurance.

The above is totally valid. However, what the bank cannot do is force you to contract the insurance with them. Each person is free to seek better conditions and prices with other insurers. This to the extent that the level of coverage provided by another insurance is equivalent to that required by the bank.

As advice we can tell you that if you are looking for economy or broader coverage for your credit insurance, you should consider different options. Contracting the insurance with the bank can be much more expensive than contracting it with your intermediary.

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