Borrower insurance
Mortgage insurance for a rental investment: which coverages to reduce and which to keep
For rental properties: the cover the lender really requires, what can be reduced, the cumulative-limit trap, and the case of a property company (SCI).
For a rental investment, the core coverages for death and total and irreversible loss of autonomy should be retained as they are: they protect the repayment of the capital. The flexibility lies in disability and inability to work, where the deductible, the method of compensation, and the exclusions can be discussed because the rent covers part of the instalment. The level required by the lender should be requested in writing before structuring the contract.
By Sandy MASCART, mandataire d'intermédiaire en opérations de banque et en services de paiement ORIAS 26000541 sous le mandat de CDV PATRIMOINE & ASSURANCE (ORIAS 14005573)
Key points
- The core coverages for death and total loss of autonomy cannot be negotiated: without them, a rented property financed by credit passes on a debt rather than an asset.
- Regarding inability to work, the deductible, the method of compensation and the exclusions can be discussed, because the rent covers part of the instalment.
- The rent is not guaranteed by the mortgage insurance, and it remains taxable during a period of work stoppage: the cash flow gap exceeds the mere instalment.
- The threshold that exempts you from the health questionnaire is assessed on the cumulative outstanding amount of all loans held by the same insured person, and an investor quickly exceeds it.
- In a civil real estate company, it is the partners who are insured, generally up to the amount of their guarantee commitment, and not the company itself.
In a rental investment, the rent covers part of the instalment: the borrower insurance does not need to mirror that of your main residence. Keep the core, reduce the disability cover, and save on a loan-by-loan basis. See the borrower insurance guide and each guarantee.
Is it mandatory in rental property?
No text imposes it. The lender requires it by contract and sets the level of guarantees: it can be negotiated in its content, not just in its price.
The guarantees the bank requires in rental property
Death and total and irreversible loss of autonomy: always. Invalidity and incapacity: depending on the bank and the weight of the project in your debt-to-income ratio.
- décès
- perte totale et irréversible d’autonomie (PTIA)
- incapacité temporaire totale (ITT)
- invalidité permanente totale (IPT)
- invalidité permanente partielle (IPP)
- perte d’emploi
Les définitions varient d'un contrat à l'autre : c'est la définition retenue, et non l'intitulé de la garantie, qui détermine ce qui est couvert.
- En vigueur depuis le
- Source
- Légifrance
Death and PTIA: the core to keep intact
Without death cover, your heirs receive a debt, not an asset (death and succession).
Invalidity and incapacity: where you save
- The franchise: extending it lowers the premium, the rent amortises the waiting period.
- Lump sum or indemnity: one pays the share of the instalment regardless of your loss, the other according to the loss of activity income. Read the clause.
- The exclusions, redeemable in certain contracts.
First, request in writing what the bank requires, then a contract that covers exactly that.
Why the requirement changes in the rental sector
In the event of a long-term cessation of activity, the rent covers part of the instalment: the requirement relates to the difference. This is what justifies reducing the inability to pay.
- The insurance does not cover the rent: vacancy and arrears fall under the guarantee for unpaid rents. If the property is vacant or undergoing works: do not reduce it.
- The rents remain taxable during the cessation: calculate the true shortfall.
Multiple loans: where to start
Each loan is substituted separately, without penalty or guarantee fees, and the benefit is repeated for each, without renegotiating the credit.
- The highest outstanding capital first.
- If the capital is equal, the longest residual term.
- Loans close to maturity last.
Procedure: the Lemoine law, which allows changing at any time, without fees.
The health questionnaire returns at the second or third property
The waiver of the questionnaire depends on the cumulative insured amount, per insured person. At the second or third property, the threshold is exceeded without realising it.
Le plafond s'apprécie sur l'encours cumulé de tous les contrats de crédit, et sur la part assurée — donc en tenant compte de la quotité retenue.
- En vigueur depuis le
- Source
- Article L. 113-2-1 du code des assurances — Légifrance
- The timeline is extended: negotiate the suspensive condition in the preliminary sale agreement.
- The quota changes the moment at which each person crosses the threshold (the fourth investment).
In an SCI: the partners are insured
The company borrows, but it is the partners, often guarantors, who are insured, according to an allocation set by the bank.
- The benefit extinguishes the company's debt; the heirs receive the shares.
- A change of partner does not update the contract: request it.
- Under the IS regime, the extinction of the debt has tax implications: consult your chartered accountant before subscribing (SCI under IR or IS).
A claim must be declared within the deadlines of the contract (declaring a claim).
Deductible from rental income?
Under the actual regime, the premiums of a loan allocated to the rented property are deductible with the borrowing costs. Under the flat-rate regime, the allowance replaces any deduction.
Au régime réel, les primes d’assurance figurent parmi les charges de la propriété déductibles pour la détermination du revenu net foncier (CGI, art. 31, I, 1°, a bis). Le même article range les intérêts des dettes contractées pour l’acquisition du bien parmi ces charges (d).
Règle fiscale affichée avec sa source et sa date d'effet. Elle ne remplace pas l'analyse de votre situation par un professionnel du chiffre.
- En vigueur depuis le
- Source
- Article 31 du code général des impôts — Légifrance
Validate with your chartered accountant. A tax gain does not justify a contract more expensive than necessary.
Before your next rental loan
- The bank's written requirement: do not pay for an incapacity that it did not require.
- Your portfolio: proportions and deductibles are harmonised line by line.
- The cumulative insured outstanding amount, before the next transaction.
Have the structure examined by telephone. The activity of insurance intermediation is carried out as an ancillary activity to the activity of intermediation in banking operations: this article does not constitute either an insurance offer, tax advice, or personalised advice on a specific contract.
Create your file: loan and insurance arranged together.
Sources
Read next
- Home loan insurance in Lyon: Sandy MASCART
- Mortgage in Lyon: frequently asked questions
- Is borrower insurance mandatory? No, but the lender may require it: who decides what No law requires you to insure a mortgage, but the lender may require it: what the lender decides, what you choose, and what to do in the event of a refusal.
- Mortgage insurance share: 100/100 or 50/50, how to choose as a couple What remains due to the survivor depending on the chosen split, the overlooked effect on sickness benefit, and a decision grid based on the income gap.
- Financing a fourth rental investment: why the bank stops, and how to proceed Refusal at the third or fourth rental investment: what is truly blocking the bank, and the levers that restart the financing, in the right order.
- Financing a purchase through an SCI, under IR or IS: what the bank truly requires Mortgage through an SCI: partners’ joint guarantee, debt-to-income ratio, current-account contribution, security. What secures the deal, under IR or IS.
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