Loan payment-protection insurance — when does it pay off?
Almost every mortgage in Czechia comes with an offer for payment-protection insurance. The bank will tell you it gives you a better rate. The truth is more nuanced.
What payment-protection insurance covers
Insurance pays your mortgage installments if you can't:
- Death — full mortgage paid off
- Permanent disability — full mortgage paid off
- Long-term illness/injury — installments paid for 6–12 months
- Loss of employment (limited) — installments for 3–6 months, only for employees, not self-employed
How much does it cost
Typical cost: 0.05–0.15 % of outstanding balance per month. On a 4M CZK mortgage, that's 200–600 CZK/month, or 60,000–180,000 CZK over 25 years.
Bank's insurance is usually 2–3× more expensive than buying separately from a different insurer.
When it makes sense
- Family with children — death of breadwinner devastating without protection
- Single income — disability would mean default
- Risky profession — physical work, frequent travel
- No other life insurance — this fills the gap
When it's a waste
- Already have life insurance with sufficient coverage
- Two earners who could each carry the mortgage alone
- Large savings reserve (1+ year of expenses)
- Self-employed — unemployment cover doesn't apply, you pay for less
Practical advice
If you need protection: take it from independent insurer, not the bank. Same coverage at half the price. Banks will tell you it's "tied to the rate" — usually a soft sell, not a hard requirement.
If you don't need protection: refuse it firmly. The bank may grumble but will not refuse the mortgage.
FAQ
Will the bank give me a worse rate if I refuse insurance?
Sometimes 0.1–0.2 % higher. Calculate: extra interest on the loan vs. annual insurance premium. Often refusal still saves you money — but not always.
Is bank's insurance valid if I move elsewhere?
It ends with the mortgage. If you refinance, the policy ends and you need a new one. Independent insurance follows you regardless of bank.
What if I have a heart attack and can't pay?
If covered, insurance pays installments for the agreed period (typically 12 months). If you have insurance through the bank, claim through them. If through independent insurer, claim directly.