The saving from switching borrower insurance comes down to one subtraction: what you still have to pay on your current policy, minus what a new policy would cost over the same period, with equivalent cover. It can exceed €25,000 for a young couple early in their loan and fall almost to zero towards the end of the loan. Three parameters decide: the remaining term, your age and the calculation basis of the current policy.
How do you calculate your saving in four steps?
- Note the details of your current policy: the loan offer states the total cost of insurance in euros, the TAEA (annual effective insurance rate), each insured person's quotité (share insured) and the calculation basis (initial capital or outstanding capital). The amortisation schedule breaks down the insurance portion of each instalment.
- Calculate the remaining cost: if the premium is constant, multiply it by the number of months remaining; if it falls with the capital, add up the "insurance" column of the amortisation schedule from the next instalment onwards.
- Get a quote for a delegated policy over the remaining term, with the same share insured and the cover required in your bank's standardised information sheet (FSI), noting its calculation basis.
- Compare the two remaining costs, including any membership fees for the new policy. The bank, for its part, may not charge any fee for the substitution or for the amendment.
Initial capital or outstanding capital: why the basis changes everything
A premium calculated on the initial capital stays the same until the last instalment: towards the end of the loan, you pay just as much to cover capital that has become small. A premium calculated on the outstanding capital follows the loan down, high at the start and minimal at the end. The consequence: a current policy based on initial capital almost always leaves a saving to be made, even late on; a policy based on outstanding capital leaves less and less over time.
Case 1: a couple aged 32 early in their loan
For illustration, a non-smoking couple borrowed €300,000 over 25 years a year ago, each insured at 100%. The group contract is at 0.30% of the initial capital per person: 300,000 × 0.30% ÷ 12 = €75 a month per insured person, i.e. €150 for the couple. Over the 288 remaining months, that comes to €43,200. A delegated policy at 0.10% of the initial capital costs €25 a month per insured person, i.e. €50 for the couple and €14,400 over the same period. The saving reaches €28,800.
Case 2: a borrower aged 45 halfway through the loan
A sole borrower signed a €250,000 loan over 20 years at 2% ten years ago, insured at 100% under the group contract at 0.36% of the initial capital: 250,000 × 0.36% ÷ 12 = €75 a month, i.e. €9,000 over the 120 remaining months. The outstanding capital is about €137,450. A delegated policy at 0.22% of the outstanding capital starts at about €25 a month and then falls, for a total of about €1,575. The saving is about €7,400. The same 0.22% rate applied as a constant premium to €137,450 would cost about €3,020: the basis of the new policy matters as much as its rate.
Case 3: a borrower aged 56 five years from the end
A borrower took out a €180,000 loan over 20 years at 1.8% at the age of 41. There are 60 months left and about €51,240 of capital. His group contract is at 0.40% of the outstanding capital: the remaining premiums amount to about €530. At 56, a delegated policy may be priced at around 0.38% of the outstanding capital, i.e. about €500. A gain of around €25 does not justify the effort, all the more so as the loan ends after his 60th birthday, so a health questionnaire may be required. Had his group contract been calculated on the initial capital, he would still have €60 a month to pay, i.e. €3,600, and the saving would exceed €3,000.
What effect on the TAEG and the total cost of the loan?
Switching insurance changes neither the nominal rate, nor the instalment excluding insurance, nor the term: the bank may not touch the rate. Only the total cost of the loan, insurance included, falls, by the amount of the saving. The TAEA measures what insurance adds to the TAEG (the annual percentage rate of charge). In case 1, with a loan at 3.5% and a calculation over the full term of the loan, excluding arrangement and security fees, the couple's group insurance adds about 0.94 of a point to the TAEG, the delegated policy about 0.32 of a point. Compare on the TAEA or in euros, never on the headline rate alone.
When switching is not worthwhile
- Only a few years remain and your current policy is calculated on the outstanding capital: the remaining premiums are already low.
- Your health has deteriorated since signing: the new insurer may apply a surcharge or an exclusion that your current policy, taken out earlier, does not take into account.
- You exceed one of the thresholds for exemption from the questionnaire (€200,000 insured per person, all mortgages combined, or a loan ending after your 60th birthday) and a health issue is likely to be priced in.
- You plan to sell or repay the loan soon: the saving only runs until repayment.
- The cheaper policy does not meet all the criteria of your FSI: the bank will refuse it.
Do not buy a saving at the expense of cover
Reducing the share insured, lengthening the waiting period, switching to indemnity-based cover when you are self-employed or accepting an exclusion of back and psychological conditions lowers the price, but also the protection. For a couple, 50% each costs half as much as 100% each and leaves half the capital for the survivor to repay: the share insured should be decided on its own merits, not to inflate the saving. If the bank refuses the policy because a criterion is missing, see what to do when your delegation is refused.
What the firm does
We establish the real remaining cost of your insurance, we put several insurers in competition with cover at least equivalent to the criteria of your FSI and we quantify the saving over the remaining term, including when it is too small to justify a switch. If you decide to switch, we prepare the delegation request and follow the formalities with the bank through to the amendment. The review is free and without obligation.
- Saving = remaining cost of the current policy minus cost of the new policy over the same period, with equivalent cover.
- The remaining cost can be read in the loan offer and the amortisation schedule.
- The gain is greatest early in the loan, at a younger age, with a current policy based on initial capital.
- Late in a loan based on outstanding capital, the gain can be close to zero: do the calculation before switching.
- The loan rate does not change; only the total cost falls, and the cover must not fall with it.