Borrower insurance
The TAEA: the single figure that compares two insurance policies, and how to read it
What the TAEA actually measures, why a premium rate is not one, and the three normalisations without which it compares nothing.
The annual effective rate of the insurance measures by how much the insurance increases the overall effective rate of a loan: it is the difference between this rate calculated with and without insurance. The lender must provide it, along with the total cost in euros and the amount per instalment. It only compares two contracts after three normalisations: the same guarantees, the same proportions, the same loan. A premium rate expressed as a proportion of the capital is not one.
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 TAEA measures the difference between the overall effective rate of the credit with insurance and without insurance: it only makes sense when related to a specific loan.
- A premium rate expressed as a proportion of the borrowed capital is not an annual effective rate of the insurance and cannot be compared to anything.
- The lender must express the cost of the insurance in three ways simultaneously: as an annual effective rate, as a total amount in euros and as an amount per instalment.
- A premium based on the initial capital remains constant despite decreasing coverage; based on the outstanding capital, it decreases.
- Comparing two TAEAs requires first aligning the scope of the guarantees, the proportions per person and the loan itself, failing which the comparison is distorted.
To compare two mortgage insurances, only one figure matters, and the law requires it to be provided to you: the effective annual rate of the insurance. Read it after three levelled payments. The rest: the borrower insurance file.
What exactly is the effective annual rate of the insurance?
The difference between two global effective annual rates: that of the loan with the required insurance, minus that without insurance. It is not the premium expressed as a proportion of the capital.
La différence entre deux taux annuels effectifs globaux : l'un calculé en supposant l'assurance intégralement exigée par le prêteur, l'autre en supposant qu'aucune assurance n'est exigée
Deux calculs de taux effectif global, et une soustraction. La même méthode que pour le taux effectif global s'impose : actualisation des flux ou intérêts composés, jamais une moyenne.
- En vigueur depuis le
- Source
- Article R. 314-12 du code de la consommation — Légifrance
TAEA = TAEG calculé en supposant l’assurance intégralement exigée MOINS TAEG calculé en supposant qu’aucune assurance n’est exigée ; même méthode que le TAEG (actualisation des flux ou intérêts composés)
- En vigueur depuis le
- Source
- Article R. 314-12 du code de la consommation — Légifrance
Global effective annual rate with insurance = rate without insurance + effective annual rate of the insurance. The insurance is read in interest rate points, like the loan (Article L. 313-8 of the Consumer Code).
The "premium rate" is not an effective annual rate of the insurance
Le taux annuel effectif de l'assurance (TAEA)
À l'exclusion de tout autre taux. Afficher un taux de cotisation à côté du taux annuel effectif de l'assurance est irrégulier ; l'afficher à sa place l'est aussi.
- En vigueur depuis le
- Source
- Article L. 313-8 du code de la consommation — Légifrance
It ignores the term and is comparable to nothing. An insurance rate without a name? Request that the document be completed.
Six figures displayed: what each one hides
| The figure displayed | What it measures | What it does not say |
|---|---|---|
| The contribution rate | The contribution expressed as a proportion of the capital, over a single period | Neither the duration nor the timing of the outflow; it is not comparable to any loan interest rate |
| The contribution per instalment | What you pay out this month | Whether it will remain constant or decrease, and over how many instalments |
| The savings announced in euros | A difference between two calculations of which you know neither the scope nor the time horizon | On which guarantees, which proportions and which loan the difference was constructed |
| The annual effective rate of the insurance | By how much the insurance increases the overall effective rate of the loan | The time profile of the cost, and therefore what happens if you repay in advance |
| The total cost over the full term | What you will pay if the loan runs to its maturity | What you will have paid if you sell before then |
| The total cost over the reference period | What you will have paid if the loan ends early | The cost of the long-term scenario |
What the bank is obliged to give you
Before the loan offer, the cost of the insurance is expressed in three ways: the annual effective rate of the insurance, the total in euros over a reference period and over the full term, and the amount per instalment.
Ce second montant n'est pas un supplément décoratif : c'est le seul qui parle à un emprunteur dont le prêt ne courra pas jusqu'à son terme.
- En vigueur depuis le
- Source
- Article L. 313-8 du code de la consommation — Légifrance
Resale, transfer, buy-back: your loan may end early. Request both amounts.
Initial capital or outstanding balance: the basis that causes two contracts to diverge
- on the initial capital, the premium remains constant;
- on the outstanding balance, it decreases.
Do not compare two first-month premiums. Read the amount over the reference period next to the rate.
Three levels of alignment for a comparison that holds
Un taux affiché sans la liste des garanties correspondantes n'est ni conforme, ni comparable.
- En vigueur depuis le
- Source
- Article R. 314-13 du code de la consommation — Légifrance
- The guarantees: a lower rate may hide a missing guarantee. Check the exclusions.
- The shares, guarantee by guarantee (Article R. 313-23 of the Consumer Code): see the share in a couple.
- The loan: same capital, same remaining term.
Does the TAEA cover everything you pay?
No: only the guarantees required by the lender. An added guarantee is paid on top.
Ask what the rate includes, then what you pay in addition, and add it to the total in euros.
Reading two proposals in five steps
- Equivalence before price: see the equivalence of guarantees.
- Align guarantees, shares and loan.
- Compare the TAEAs.
- Check with the two amounts in euros: your actual horizon decides.
- Carry the difference over to the total cost: see the TAEG.
Does the annual effective rate of the insurance change after a substitution?
Yes: the amendment states the new overall effective rate. The difference is your gain.
The procedure: the Lemoine Act.
Two proposals in hand? Create your file or translate the difference into the total cost of the loan.
This article is for informational purposes. The activity of insurance intermediation is carried out as an accessory to the activity of intermediation in banking operations: it does not constitute an offer of insurance, nor personalised advice on a specific contract.
Sources
Read next
- Home loan insurance in Lyon: Sandy MASCART
- Mortgage in Lyon: frequently asked questions
- Equivalence of guarantees: the criteria the lender selects, and how to challenge them Who selects the equivalence criteria, where to find your lender’s list, how to read a refusal letter, and the deadlines running against the lender.
- Delegation of borrower's insurance: when to request it for a new loan? For a new loan, the delegation of insurance is prepared before the offer: documents to request, order of procedures, what the bank cannot do.
- Mortgage insurance exclusions: back, mental health, sports, professions – what voids a guarantee General, specific, and buy-back exclusions: what is never covered, what can be reinstated for a surcharge, and the combination that the law prohibits.
- Mortgage amortisation schedule: how to read and check it yourself Amortisation schedule: verify each line with three checks, read the interest, capital and insurance, and see the effect of an early repayment.
All articles on this topic: Borrower insurance