How to get a refund on loan insurance

What is loan insurance and why is it needed

When applying for any type of loan, the bank offers the borrower an additional service: insurance. Its purpose is to financially protect the client of the credit institution in the event of a financial hardship.

There are only two types of insurance: mandatory and optional. The first is issued by the bank by default when collateral insurance is required (for example, mortgage real estate or vehicles when taking out an auto loan). The second type is voluntary (life and health insurance, loan insurance in case of job loss, against financial risks, etc.), meaning the client can refuse to sign the agreement.

Borrowers consider insurance to be nothing more than a useless imposed service that allows the bank to enrich itself at the clients' expense. In reality, loan insurance helps the borrower repay the debt to the credit institution when they experience difficulties making the monthly payment—that is, when an insured event occurs. Basically, insurance companies assume obligations in the following situations:

• upon temporary or total disability due to an accident or illness;
• upon being granted disability of group 1 or 2;
• upon the death of the borrower;
• upon job loss due to dismissal or staff reduction.

Note.

It is best to check which specific cases are considered insured events in your individual agreement, as terms may vary depending on the insurance company.

Why banks push insurance and is it legal

Federal Law No. 4015-1 "On the Organization of Insurance Business in the Russian Federation" dated 27.11.1992 gives banks the right to offer the borrower to insure a loan. This is logical, as the insurance service allows the lender to protect itself in case of a serious illness or death of the borrower. But from a legislative standpoint, forcing a client to take out an insurance policy is only allowed in exceptional cases. In reality, the situation is different: the borrower is forced to insure the loan by raising interest rates and refusing the loan if they decline insurance.

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Which types of insurance can be refunded and which cannot

A borrower can return any imposed insurance if it is not mandatory. Namely:

• life and health insurance;
• movable and immovable property insurance, unless it concerns CASCO when taking out an auto loan and collateral real estate when taking out a mortgage;
• job loss insurance;
• title insurance for real estate;
• financial risk insurance.

Moreover, when refunding insurance, it does not matter much which type of loan product was issued to the client: a targeted or non-targeted loan, credit card, or installment plan.

By law, it is impossible to get money back for an insurance policy in only two cases:

1. When the borrower takes out a mortgage. In this case, mandatory collateral property insurance is required.
2. When the borrower takes out an auto loan. In this case, CASCO insurance will be required (OSAGO insurance is not suitable for an auto loan).

You also cannot return specific insurance, which includes medical insurance for foreign citizens working in the Russian Federation, medical insurance for Russians outside of Russia, and medical insurance for certain professions where an insurance policy is a mandatory condition for performing professional duties.

How banks avoid refunding insurance

Since January 1, 2018, insurance holders have been given the opportunity to cancel insurance and get a full refund within 14 days from the date of the agreement. This two-week period is called the "cooling-off period".

The innovation became another unprofitable obstacle for banks and insurance companies, which is why many schemes to circumvent the law appeared. Here are the most common ones:

1. Information concealment. Only a small fraction of borrowers know about their right to an insurance refund after receiving a loan. And consultants do not provide this information for selfish reasons. At best, insurance refund information will be indicated in the insurance policy. But some banks, violating the law, omit this clause in the agreement.
2. The second way to avoid a possible insurance refund is to issue a collective agreement. In the classical scheme, i.e., in individual insurance, the borrower is the insured person and the policyholder, and the insurance company is the insurer. In the case of collective insurance, the bank acts as the policyholder.

Wishing to take out an insurance policy, the client transfers money to the bank, and the bank, in turn, forwards it to the insurance company. Under this scheme, the borrower has no direct contact with the insurance company, and therefore only the credit institution can refund the money for the insurance.

Of course, both cases can be easily challenged in court and the insurance money can be recovered. But this will entail additional time costs and bureaucratic difficulties. Therefore, we recommend clarifying this information at the stage of taking out the insurance policy.

How to get a consumer loan insurance refund in 2022

Of course, the easiest way is to refuse insurance at the registration stage. But some borrowers cannot do this under the pressure of the loan specialist, fearing a loan denial. Therefore, let's figure out how a client should act when getting money back for an existing insurance policy.

During the cooling-off period

The easiest way to get a full refund for your insurance is to terminate the agreement during the cooling-off period (within 14 days of signing the contract with the insurance company). The cancellation process looks like this:

1. Some insurance companies may independently extend the cooling-off period. That means it might be 30 days instead of the 14 days established by law, for example. Therefore, the first step is to check the insurance policy text for this information.
2. Next, you need to write an application addressed to the insurance company with which the additional services contract was concluded. A sample form can be found on the insurer's portal. It will also specify how to submit the documents: electronically, by mail, or by visiting a company office.
3. Wait for a decision on your application. According to the law, the review period cannot exceed 10 calendar days from the date of submission.

After the 14-day period expires

If the client fails to submit an application to terminate the agreement during the cooling-off period, they will not be able to get a full refund. However, they can still cancel the insurance and recover a portion of the money spent on it. In this case, the insurance company will refund the full amount minus the cost for the period the insurance policy was active. All steps for the insurance refund will be the same as in the previous case, except for the application review period.

Insurance refund upon early loan repayment

Virtually any borrower paying off a loan ahead of schedule expects to receive compensation for the unused insurance as well. In reality, however, not everyone manages to get compensation back. If the insurance company refuses to refund the money, citing the Civil Code, the client needs to file a lawsuit. In addition to the claim, the borrower will need to provide documents such as:

• passport;
• a copy of the insurance policy;
• a bank certificate confirming that the loan has been paid off early and in full;
• the settlement account number where the compensation will be sent if the claim is approved.

We would like to note that even going to court does not guarantee that the insurance company will compensate the money for the unused insurance. The court's decision on the claim directly depends on the text of the agreement. Therefore, before going to court, we recommend consulting a loan lawyer to determine whether legal action is justified.

After full repayment of the loan

Refunding insurance after full repayment of a loan is the most complicated scenario, especially if it was paid off on time (in accordance with the payment schedule). In this case, for the client to get a refund for the insurance policy, three conditions must be met simultaneously:

1. The insurance was imposed on the client, and there is proof of this.
2. The client has already applied to the insurance company for an insurance refund, but received a written refusal.
3. The statute of limitations for the insurance agreement has not expired. That is, the client applied to the court no later than 3 years from the date of obtaining the insurance.

It is worth noting that almost all cases related to insurance refunds after full loan repayment end in favor of the insurance company, since it is easy for the bank to prove that the contract was concluded on a voluntary basis.

Specifics of insurance refunds at popular Russian banks

Let's look at insurance refund cases in the most popular Russian banks:

1. In the case of Sberbank, you can only get your money back during the cooling-off period, i.e., within 14 days of signing the contract. After this time expires, you can cancel the insurance, but the insurance company will not refund the money for the unused policy.
2. The same applies to VTB. The credit institution will refuse compensation for the insurance if the client submits an application after the cooling-off period has expired. A refusal will also be issued in the event of early loan repayment. However, if an insured event occurs after full settlement with the bank, the client will be paid in full. In addition, the bank increases the loan interest rate if the borrower declines insurance during the loan term.
3. You can also receive compensation for insurance from Alfa-Bank within 14 days of signing the contract. No penalties in the form of an increased interest rate are provided for this.
4. The same applies to T-Bank. In addition, this credit institution provides for refunds even after full repayment of the loan.

Tips: what to do if the bank refuses to refund your loan insurance

If the insurance company refuses to terminate the contract with the client, the only way to exercise the legal right to an insurance refund is to turn to competent professionals. Ideally, this should be a lawyer specializing specifically in loans.

Of course, you can prepare all the documents for a lawsuit without third-party assistance. But the time and effort spent searching for information and paperwork are incomparable to the cost of hiring a lawyer.

Note.

Some banks and insurance companies value their reputation, so publicizing the situation on popular bank rating websites such as Banki.ru or Sravni.ru can help with getting an insurance refund.

Conclusion

So, in most cases, insurance is not a mandatory service. Therefore, you can decline it even at the loan application stage. And remember, refusing loan insurance cannot be grounds for loan denial. If you have already been saddled with an unnecessary insurance policy, you have the legal right to cancel it within two weeks of signing the contract. Moreover, in certain cases, you can terminate the agreement with the insurance company and get your money back even after paying off the loan in full.