Is it mandatory to take out life insurance on personal loans?

by Lisa Baker

If you are thinking about applying for a personal loan and you don’t know what decision to make about the services they offer you, here we will tell you what you need to know.

In general, banks usually ask you to take out life insurance on personal loans. This is the bank’s way of ensuring that the payment will be made under any unforeseen circumstances that may occur, and it also works as a sales strategy.

Therefore, sometimes they even offer other products, such as credit cards or direct debit of your payroll, and many times it seems that there is no way to refuse. But … is it mandatory to accept it to be approved for the loan?

Don’t worry, this doubt occurs very often. Don’t let pressure or haste force you to make decisions without having thought through whether or not it is right for you.

Do I need to be linked to get a loan approved?

The reality is that, by law, the bank cannot force you to take out life insurance on personal loans or force you to purchase any other product.

However, you must comply with all the requirements that the financial institution stipulates for the loan to be approved and among them you usually have a good solvency and payment reliability.

In other words: if the bank considers that there is a risk that you will not be able to pay the loan, it can deny you . The insurance policy eliminates this risk and makes you the perfect candidate for the loan.

But a life policy or payment insurance doesn’t just make it easier to get your loan approved. Its real benefit for you is that banks offer a subsidized loan with a lower interest rate, in exchange for you taking out the insurance.

Advantages and disadvantages of taking out life insurance for a personal loan

If you are looking for life insurance or some other financial product, it is possible that you will get it much more quickly this way.

On the other hand, these services may have competitive prices or better features than those offered by other banks . In addition, by contracting several products from a bank you could obtain other financial benefits, including lower interest rates.

However, be cautious: it is likely that the life insurance contract in the personal loan is more expensive than one dedicated in another financial institution. In addition, it is possible that you lose the discounted interest if you renounce the insurance or if your payment is delayed.

Some final recommendations

When deciding whether to take out life insurance on personal loans , the first thing you should do is make a good balance of the interest rates and commissions in each case.

Always look for a loan that adapts to your payment possibilities and work profile in order to generate payment confidence and that you do not require insurance to be approved.

Likewise, make sure you clearly understand the terms in which the contract is made and its characteristics. Do not hire a service that you do not need.

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