How does loan insurance work?

What is a payment protection or loan insurance?

• Simply put, loan insurance provides financial protection for your monthly installments in the event of problems during the term.
• Above all, the protection by the borrower with a (mostly optional) loan insurance (PPI, Payment Protection Insurance) is known.
• In the event that the borrower dies during the term of the contract, most providers take out collective insurance.

Insurance categories for the borrower

There are four key events for which loan insurance is taken out:

• Accident or illness causing temporary incapacity for work and thus income loss.
• Incapacity for work.
• Involuntary unemployment, deemed as such if:
  • termination is initiated by the employer,
  • and unemployment persists for a set period (e.g., 60 or 90 consecutive days).
• Death

For accident, illness, and involuntary unemployment, the insurance is optional and requires an additional premium on top of the monthly instalment.

How does the insurance work

• The insurance is optionally offered by the lender. It is not mandatory to take out this insurance. There are additional costs, which are shown separately in the loan agreement. They will then be invoiced at the agreed monthly rate.
• Most lenders offer their customers their own insurance offer with a selected partner. They conclude a collective agreement with the insurer and then charge the costs onto the borrower. These are products of the well-known major Swiss insurance providers. As a customer, you cannot choose the insurer yourself.

When does loan insurance pay?

Before taking out any insurance, you should carefully review the offer. Here are some key points:

1. Cost coverage based on the claim

Loan insurance does not apply in every case from the first day of the loan payment (called «Karenzfrist»). If the borrower changes jobs, this type of waiting period applies during which there is no insurance coverage. The second type of waiting period refers to a delay after the occurrence of an insured event before the insurance covers it.

If the deadlines defined in the General Terms and Conditions (GTC) have expired, the assumption of costs is regulated in detail and determines the coverage or reasons for exclusion of insurance benefits.

2. Coverage is defined by the type of event

Basically, the coverage is defined for each type of event:

• The assumed share of the monthly instalment in %
• The number of monthly installments per event
• The maximum number of events during the entire contract period

As with any insurance, there are cases where no benefits are provided. Check these in the General Terms and Conditions of the provider.

3. Exclusions

As with any insurance, there are also exclusions for loan insurance where no service is provided. Check these in the general terms and conditions of the respective provider.

What is checked for loan insurance?

An examination does not necessarily take place before a loan insurance policy is taken out.

• The requirements for taking out insurance are contained in the insurance conditions of the respective provider.
• By applying for insurance, the policyholder confirms that they meet these requirements.
• The most important requirements relate to work activity, residence in Switzerland and health status.

Do I need a a health check to take out loan insurance?

• No, a health check isn’t required to take out loan insurance. However, you release medical professionals, health insurers, and other relevant parties from confidentiality obligations.
• This means the insurer may review your health status before issuing the policy or in case of a claim.
• If a known existing illness or limitation causes a claim during the loan term, the insurance won’t apply.

In summary: no separate health check is conducted. An application may be rejected if a review occurs before the insurance period. If a known health issue leads to a claim, the insurer won’t pay.

What happens to the insurance when the loan is repaid?

Once the loan is fully repaid, the insurance ends, whether per the regular schedule or through early repayments, which are allowed anytime in Switzerland. Even if issues arise leading to early termination by the lender, the insurance ends with the loan agreement. This may occur in cases of gross default, where the lender terminates the contract and demands the full amount, or, for example, in personal bankruptcy.

Is it possible to cancel the insurance?

Since there is no obligation to take out loan insurance, it can also be terminated during the term of the loan.

The termination conditions – i.e. the time at which the insurance can be terminated in each case – as well as requirements for the form (written form) are regulated in the General Insurance Conditions. As a borrower, you take out the insurance via bank, which means that the termination of the insurance must also be sent to the lender for the insurer's attention.

There are other reasons why loan insurance ends – for example, if a job is started abroad or maximum defined insurance benefits have been provided according to the contract.

Take out loan insurance during runtime

If there are no grounds for exclusion (in particular unemployment or illness), it is generally possible to take out loan insurance at a later date. However, the handling differs depending on the provider. We will be happy to advise you if you have any questions about a current or future loan agreement on the subject of insurance.

Alternative offer in partnership with AXA

TInsurance offers vary by lender. In the past, some lenders didn’t provide insurance or covered only certain types of claims.<br>In partnership with AXA Insurance, we offer our customers a solution not directly linked to the loan agreement.

When is loan insurance worthwile?

Loan insurance, like all insurance products, is fairly complex and tightly regulated. As the key question when applying for a loan is whether you’ll get one, and only then which lender you’ll use, you don’t get to choose the insurer.

Deciding for or against loan insurance is highly personal and depends, among other things, on your risk tolerance. In cases of illness, accident, or unexpected unemployment, depending on your financial situation and fixed costs, a loss of income may make paying instalments difficult or impossible, forcing you to cut back elsewhere.

We’d be happy to advise you on loan insurance after your non-binding loan enquiry if you have further questions.