When you turn on a loan you can take out an insurance policy, which protects the debtor and his heirs in the event of adverse events. These are the so-called combined policies, also known as PPI (acronym of Payment Protection Insurance).
These contracts are used to guarantee the balance of the amount lent in the event of negative situations involving the debtor. The hedges usually concern the risks of death , disability or disability due to accident and illness , hospitalization , loss of employment of the insured / debtor .
The combined policies are not mandatory. The lending institution may request them, as well as offer them, but the client has the right to refuse the proposal, without prejudice to the possibility of keeping the risks at his own expense or of entering into a different PPI policy with an insurer of his own confidence (different from the one suggested by the creditor).
These contracts usually provide for the payment of a single premium, valid for the entire duration of the loan, the cost of which is included in the amount financed.
In doing so, the customer can derive some benefits, including the reduction of collection costs (which on the other hand could be envisaged on individual payments, if one opts for the recurring premium) and the ability to “spread” the cost directly in the installments, reducing then the one-off payment. At the same time, the funding body can also benefit, because the interest will be determined on a higher amount.
But what happens if, while the repayment plan is in progress, at some point the debtor decides to pay off the loan early? The theme is quite simple on paper, but not so obvious in practice. To the point that IVASS , the Institute that supervises insurance companies, conducted a specific verification action following the numerous reports received in relation to commercial practices considered to be incorrect. In that case it was insurance coverage combined by car dealers with financing for the purchase of vehicles, but the matter is more general and also concerns personal loans and salary-backed loans.
To a refund of the unused portion of the premium, including the related charges (ie the management costs that constitute the company’s profit for the activity carried out), as related to the part financing that ended earlier than originally agreed. However, this does not always happen with automatic and transparent procedures, making it necessary for the debtors to read up well (first) and to verify just as well (then) contractual clauses and calculations. Let’s try to see more clearly.
On 22 October 2008, the trade associations of the banking and insurance world, namely ABI and ANIA, signed the “Guidelines for insurance policies related to mortgages and other loan agreements”. This agreement expressly establishes that in the event that the loan or loan contract is terminated in advance with respect to the initial contractual duration, and it is assisted by an insurance cover placed by the lender and whose premium has been paid in advance in a single solution, the creditor “returns to the customer – both in the case in which the payment of the premium was anticipated by the lender and in the case in which it was carried out directly by the customer towards the insurer – the part of the premium paid relating to the remaining period for which the risk has ceased ».
The principle was then reiterated with the same linearity as Article 49 of IVASS Regulation n. 35/2010 (hereinafter replaced by Article 39 of Regulation No. 41/2018), where it provides that in the event of early repayment of the loan the company must return to the debtor / insured party the part of the premium paid and not taken, calculated:
As noted by the Supervisory Institute , the investigations carried out on a sample of PPI policy prospectuses “highlighted criticalities in the calculation procedures and in the level of transparency towards policyholders”.
If it is true that understanding the formulas of financial mathematics indicated in the contracts for the determination of the reimbursable portion may not be so immediate, it is equally true that in some cases the formulas “are not always in line with the aforementioned legislation and do not consider the actual residual debt for the part relating to the pure premium to be repaid ».
It is incorrect, in fact, to calculate the amount to be repaid only on the basis of the residual duration of the loan and a possible “correction factor”, aimed at approximating the ratio between the residual debt and the original debt.
Conversely, for life insurances the portion of the premium to be repaid must be calculated both on the basis of the time remaining until the expiry of the coverage and on the basis of the residual insured capital. The portion of the charges to be reimbursed, on the other hand, must be determined in proportion to the time remaining until the expiry of the insurance contract.
For all these reasons, with a letter sent to the insurance companies on December 18, 2018, IVASS ordered the revision of all the contractual proposals and PPI policies in force, with the obligation for companies to update the pre-contractual information and policy conditions making the calculations for reimbursement of the premium in the event of early repayment more transparent and easier to understand. Not only. The Institute has also imposed the insertion of a “clear illustrative example”, both in terms of life insurance policies and in the non-life segment.
It is understood that if the debtor / insured person considers the policy conditions to be flawed, or does not consider the creditor’s work to be correct with regard to the reimbursement of the premium, it is always possible to contact the bank and financial arbitrator . The latter has in fact developed over the years a significant experience on the subject, precisely in light of the numerous controversies brought to its attention by the citizens.