Lender's insurance and the consumer

Increased access to credit has broadened the discussion surrounding the clauses and conditions of financing contracts, including the consumer's situation regarding creditor insurance.

Case law interpreting this issue is not consistent, oscillating between a protective stance towards the consumer, based on arguments of abuse, lack of choice, and the same relationship between the policyholder and the beneficiary of the coverage, and another that maintains that, because it is beneficial to the consumer in the event of unemployment, disability, or death, there is no taint of irregularity or illegality.

The stark truth is that no financial institution, in a convincing, transparent manner and in accordance with information rules, provides the policy or indicates the value of the coverage and its conditions, leaving no room for a more ingrained understanding of the model or its essential nature.

Alongside this rule, if the insurance aims, through a kind of del credere clause, to indirectly benefit the consumer, there would be no reason to consider its invalidity or ineffectiveness.

Typically, the value, when compared to the financing, is small and of little substance.

There are cases in which the contracting party fails to disclose the existence of an illness or potential ailment that could prevent the contract from being entered into, thus violating the principle of objective good faith. This means that the bank or financial institution would suffer losses if it relied solely on the remuneration and not on other aspects of the consumer.

Based on this premise, entities should act with transparency and reliability, displaying the policy, revealing the coverage and specific cases, in order to dictate the real function of the benefit and the respective circumstance involved.

Simply stating that there is a tied sale is not convincing, since without insurance the effective financial cost will be higher, and the spread will increase.

Given the model described, the consumer can be given the freedom to choose the type of contract, as is standard practice, but prudence, coupled with caution, is consistent with the coverage and its impact on protecting the borrower of the financing.

And this is a blank slate when it comes to real estate financing, which has a much longer duration and can reach up to thirty years. Therefore, and because it is unknown whether the borrower will have a long life to pay and settle their obligation, taking out insurance is an inherent rule in the balancing of interests, marking another stage in the relationship between the parties.

It should be clarified that insurance can be contracted with a company within the same economic group, but the consumer is not obligated to accept and can conduct research to obtain a more attractive offer.

However, lacking clarity and effective accountability in the event of a claim, the reality remains unknown, and the financial institution may gain an unfair advantage.

However, the policy must specify the coverage limit and, if there is any surplus, it will be distributed to the beneficiaries, in this case, family members and/or heirs of the borrower.

The subject matter is both compelling and controversial, but we cannot focus exclusively on vulnerability and lack of options, such as a bundled sale that undermines insurance.

It is fundamental to know the value, the policy category, its coverage, and any potential beneficiaries in order to apply sound legal principles and separate the wheat from the chaff when determining the legality of this type of arrangement within the contracted financing.