Borrower insurance
Flat-rate or indemnity mortgage insurance: the clause that determines what you will receive
Two contracts covering “ITT” may pay out your full instalment or nothing at all. Where to find the clause, and how to determine what it will pay you.
Flat-rate mortgage insurance pays a benefit calculated on the loan instalment, regardless of the loss of income. Indemnity insurance pays only the difference between the income prior to the stoppage and the amounts received during that period: if your salary is maintained or if a provident fund scheme applies, it may pay nothing. In both cases, the benefit is limited to the insured share of the capital.
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
- A flat-rate benefit pays an amount calculated on the loan instalment, regardless of the actual loss of income suffered by the insured.
- An indemnity benefit pays only the difference between the income prior to the stoppage and the amounts already received, which may result in a nil payment.
- The insured who is well covered elsewhere, by salary maintenance or a collective provident fund scheme, is precisely the one to whom an indemnity contract will pay the least.
- The benefit is always paid to the extent of the insured proportion: a partially covered capital entitles you only to a fraction of the instalment.
- The method of indemnification is among the equivalence criteria that the lender may invoke against a substitute contract when changing insurance.
Under a flat-rate policy, your loan insurance pays the instalment regardless of your income. Under an indemnity policy, it covers only the actual loss and may pay nothing. Here is where to read the clause and what you would receive. The full topic: the borrower insurance file; the acronyms: the guarantees guide.
What do “flat-rate” and “indemnity” mean?
Flat-rate: the benefit is calculated on the instalment, whatever your loss of income. Indemnity: the insurer pays the difference between your previous income and what you receive, up to the limit of the instalment. Loss already covered? Nothing is paid.
Definitions from the model sheet annexed to Article R. 313-8 of the Consumer Code. No legal percentage exists.
- décès
- perte totale et irréversible d’autonomie (PTIA)
- incapacité temporaire totale (ITT)
- invalidité permanente totale (IPT)
- invalidité permanente partielle (IPP)
- perte d’emploi
Le modèle de fiche que le code publie encore en annexe de l'article R. 313-8 est antérieur à la loi du 28 février 2022 : ce site n'en publie donc pas la liste comme étant celle du modèle en vigueur. Sa structure, elle, distingue depuis l'origine les deux modes d'indemnisation.
- En vigueur depuis le
- Source
- Légifrance
The choice also applies to permanent total disability and unemployment. Comparing prices without aligning this parameter is comparing two different products.
The same event, two contracts: what each pays
| Insured’s situation | Flat-rate contract | Indemnity contract |
|---|---|---|
| Employee whose employer maintains salary, supplemented by daily allowances | Pays the scheduled benefit, without looking at other income | Low or nil loss of income: the benefit may be very reduced, or even nil |
| Employee without salary maintenance, daily allowances only | Pays the same benefit as in the previous case | Pays the difference between previous income and what is received, up to the scheduled limit |
| Self-employed worker without a provident contract | Pays the same benefit | Pays the difference, often close to the maximum scheduled |
The best protected otherwise is the one to whom the indemnity policy will pay the least.
Why the indemnity-based cover may pay nothing
The insurer deducts from your pre-accident income:
- daily allowances;
- salary maintenance;
- your life and health insurance.
Salary maintenance may cease: a refusal is re-examined at every change. The reference income varies according to the contract, which is decisive for an irregular income. Some contracts set a floor: this is rare, and it is written down.
The instalment and the proportion
Both modes start from the loan instalment, excluding the contribution. The benefit is paid up to the insured proportion: the two proportions are multiplied. See the proportion for couples.
Choosing the mode that suits you
- Lump-sum: useful if you are already well covered, or if your income is difficult to reconstruct (self-employed, director, variable).
- Indemnity-based: sensible without other cover, or if the premium is significantly lower and the benefit is verified.
Therapeutic part-time work: where everything diverges
- Under the lump-sum mode, the guarantee often stops at the resumption of work.
- Under the indemnity-based mode, the benefit decreases without necessarily ceasing.
Look for “resumption of work on a part-time basis” or “partial incapacity”.
If the word is not written? The clues
- “whatever the loss of income”: lump-sum.
- “after deduction of benefits”, “up to the amount of the loss”: indemnity-based.
- Payslips and benefit statements required upon a claim: indemnity-based.
Also check the cap, in the same paragraph.
Changing insurance without a refusal on this clause
Le prêteur
Les critères opposables sont ceux que votre prêteur a lui-même retenus et publiés, garantie par garantie. Le mode d'indemnisation en fait partie chez la plupart des établissements.
- En vigueur depuis le
- Source
- Article R. 313-23 du code de la consommation — Légifrance
An indemnity-based cover may be refused in the face of a lump-sum group contract if the lender has retained this criterion. Retrieve its selection before any quote: see the Lemoine Act.
Lors de la première simulation
Article L. 313-10 du code de la consommation. C'est le document qui met face à face ce que le prêteur exige et ce que le contrat propose, mode d'indemnisation compris.
- En vigueur depuis le
- Source
- Article L. 313-10 du code de la consommation — Légifrance
Article R. 314-13 du code de la consommation. Deux taux calculés sur des périmètres de garanties différents ne se comparent pas — et le mode d'indemnisation fait partie du périmètre.
- En vigueur depuis le
- Source
- Article R. 314-13 du code de la consommation — Légifrance
Four questions, in writing
- Fixed sum or indemnity-based, in the case of incapacity and disability?
- What reference income, and what deductions?
- A floor on the benefit?
- A ceiling?
The other two doors: the definition of incapacity and the timeframes. The deadline at stake: the formula for the instalment. Place the contract and the employer’s cover side by side during a call.
This page has an informational scope. The activity of insurance intermediation is carried out as an ancillary activity to the activity of intermediation in banking operations: it does not constitute either an offer of insurance or personalised advice on a specific contract.
Create your file: compare the contracts on your actual loan.
Sources
Read next
- Home loan insurance in Lyon: Sandy MASCART
- Mortgage in Lyon: frequently asked questions
- Borrower insurance guarantees: what death, total and irreversible loss of autonomy, total and permanent incapacity, permanent total disability and permanent partial disability actually cover The five guarantees of loan insurance, in the order they apply: what triggers them, who decides, and the line in the policy document that settles it.
- “Your own profession” or “any profession”: the definition of incapacity that decides everything Two wordings, two worlds: depending on your contract’s definition, the same period of work incapacity either triggers the cover or does not.
- Excess, waiting period, waiting time: when mortgage insurance actually starts paying out Waiting period, excess, waiting time: three often confused timeframes. What each one delays, and the line in the policy document that dates the first payment.
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