Payment protection insurance (pojištění schopnosti splácet)
Insurance that covers the borrower's payments when sickness, disability or job loss leaves them unable to pay, and usually clears the debt on death. Banks offer it with mortgages themselves and often give a rate discount for taking it. If the insurance is a condition of the loan or the discount, its cost must be included in the APRC (RPSN).
Example
Suppose the bank cuts the rate by 0.2 pp for taking the insurance, from 5.20 % to 5.00 %. On a CZK 4,000,000 loan over 25 years the payment drops from CZK 23,852 to CZK 23,384, a saving of CZK 468. If the premium costs CZK 700 a month, you end up paying CZK 232 more than without the discount. It pays off only for someone who genuinely needs the cover.
In practice
Read the exclusions and waiting periods. Job loss is often covered only after the policy has run for several months, and only for employees, not the self-employed. Sickness benefit is frequently paid for a limited number of months. Compare the bank's offer with risk life insurance from an independent insurer. Cancel the policy and you may find the bank has scrapped your rate discount along with it.
How it differs
Risk life insurance pays an agreed sum insured to you or your survivors, and you can take it out with any insurer. Payment protection insurance is tied to a specific loan and pays the bank. Property insurance covers damage to the collateral, not a borrower's lost income. Unlike property insurance, payment protection is voluntary.
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