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Financial Dictionary - TAR repayment insurance

TAR repayment insurance

When we take out a mortgage loan, the bank may offer us repayment insurance, which is a guarantee that will release the heirs in the event of the death, disability or unemployment of the insured. And while it shares some similarities with life insurance, it is actually designed exclusively for those who are paying a mortgage, so it may be a better option.

As this insurance qualifies as TAR (Renewable Annual Premium), it comes with certain benefits. For instance, it features a premium that is updated each year and whenever the customer wishes. It can also be cancelled without incurring a penalty (as long as notice is given within the period stipulated in the clauses of the contract); and it may even give the policyholder the option of redeeming part of the premiums paid, although this also depends on the terms offered by each insurance firm.

While arranging this insurance is optional (note also that we are also under no obligation to do so with the bank offering us the mortgage), it is always advisable, as it will help us reduce the total price of the mortgage while also granting us certain benefits.

In the first place, it will last as long as the debt and will cover the outstanding principal of the loan, always depending on the percentage that we insure (ranging from 50% to 100%) in the event of the death, for any reason, of the policyholder, although the coverage may also be extended to other events, such as absolute and permanent disability.

It also offers us flexibility when it comes to making payment, along with different options for prices and insured principal. For example, we may sometimes choose to arrange it by paying a single premium. And in the event of death, the debt will be cancelled directly and will not give rise to any tax implications for the heirs. And if we wish to back out, we may do so within the month after it is taken out, or after a year, as long as we inform the insurance company in due course.

Types of TAR (renewable annual premium) insurance

  • The capital paid out by the insurer is equal to the outstanding debt at time of death, meaning this payment will decrease as the mortgage is gradually repaid.
  • The capital remains the same over the term of the contract, with the insurer therefore paying the outstanding mortgage amount to the bank and any surplus to the beneficiaries of the policy.

What is PUF insurance (Prima Única Financiada, or Single Financed Premium)?

It is a type of insurance where the premium is added to the amount of the mortgage. Thus, instead of making separate payments each month on the loan and then on the insurance premium, we can pay both amounts in a single payment. But be wary, because this will also generate interest; It is important to crunch numbers before choosing this option.