The bank (or other money lending financial institution) wants to make sure that you’re healthy and live until the end of your mortgage. If you passed away or became critically ill/disabled, you couldn’t work and make mortgage payments. The result would be foreclosure. This would make everyone’s lives more difficult at the bank. They’re in the loan business, not the real estate business. They want to lend money to you, make their profit on interest and fees, and then be done with it. What they don’t want is suddenly coming into possession of a pre-owned home. You and your family don’t want that, either. It’d be a time of emotional turmoil or mourning, not a time for sorting out complicated financial affairs. It definitely wouldn’t make a distressing situation any better if your family lost their home. This is why many mortgage lenders require life insurance.
If you, the policyholder, have a life insurance policy equal to the value of your outstanding loan balance, then if you pass away/become critically ill/disabled… …then the insurance payout will clear the mortgage in full. Your family will keep their home, and the people at the bank can go about their normal business without having to chase your descendants for money.
It sounds complicated, and to be frank, not that much fun. You might ask yourself “How do I set up life insurance for my mortgage?” Well, here’s some good news: it’s not as difficult as you might think. The bank or insurance company will take care of most of it.
What Types Of Mortgage-Linked Life Insurance Are There?
The most common type of life insurance for mortgages is group credit life insurance. In Japanese, this is 団体信用生命保険, Dantai Shin’yō Seimei Hoken, or 団信/Danshin for short. It’s mortgage-only insurance. Sometimes, it’s voluntary. However, often, it’s a condition for the loan. Not always, though: there’s the notable exception of Flat 35 (offered by Japan Housing Finance Agency), which doesn’t require it.
There’s also private life insurance. A few lenders will accept this instead of group credit life insurance. Or, even if not required, you can set it up to protect your family/self. Speak to your Housekey adviser about what types of low-cost private cover are available for expats.
The Home Loan Pre-Application/Pre-Qualification Stage
In Japanese, this stage is “事前審査” (jizen shinsa). It’s likely your bank will already have a group credit life insurance policy they want you to join. First of all, in most cases, you’re going to need some level of Japanese language proficiency. This is so they can go over the contract with you and make sure you understand what you’re signing. Then you can write your name, address etc. on the forms in Japanese properly.
You’ll need your health insurance card (健康保険証, Kenkō Hoken Sho). In some situations they may require you to have a medical checkup, as well- particularly if you are older. The results of your check-up will be sent to the bank. Based on this information, the bank will figure out whether or not you’ll be able to join group credit life insurance.
The Three Great Illnesses
Time for some fun trivia to break up the monotony. Did you know that the Japanese love to create Top 3 lists? For example, there are the “Three Great Cities (三大都市, Sandaitoshi):” Tokyo, Osaka, and Nagoya. There are also the “Three Holy Mountains” (三霊山, Sanreizan). These include Mt. Fuji, Mt. Haku, and Mt. Tate. There are the “Three Great Beauties” (三大美人, Sandaibijin). They say that women from Akita, Kyoto, and Hakata are the most beautiful. There are even, and we really hesitate to mention this… ..the “Three Great Uglies” (三大ブス, Sandaibusu), Sendai, Mito, and Nagoya… …though we’re sure there are still millions of beautiful women in those cities)… Did you know that Japan also has the “Three Great Illnesses” (三大病気, Sandaibyōki)? They’re: cancer, acute myocardial infarction, and stroke.
The Eight Great Illnesses
Breaking with the Buddhist odd numbering system of 3-5-7, there are the “Eight Great Illnesses”. Though actually, it’s really adding five, an odd number, to the three we already knew, so… They’re: diabetes, hypertensive disease, cirrhosis, chronic pancreatitis, and chronic kidney disease.
What Do You Do If You Have One Of The “Great Illnesses?”
Get yourself to a hospital, not a bank, silly! After that, though… If you have one of the Three/Eight Great Illnesses, getting group credit life insurance will become more “difficult”. Whether it’s the Three, or the Eight depends on the policy. If this happens, you may still have options. You can join an “Eight Great Diseases special contract group credit life insurance” policy. In Japanese, this is 八大病気特契約団体信用生命保険, or Hachi Dai Byōki toku keiyaku dantai seimei hoken. However, don’t get your hopes up. There are cases in which someone with a pre-existing condition cannot join at all. If that’s the case, consider asking the bank/financial institution about private life insurance. Even if successful, expect this to result in a more expensive mortgage.
So I’ve Been Approved For Life Insurance And Passed The Pre-Application/Pre-Qualification. What Now?
The next step is talking to your licensed real estate brokerage, finding real estate, and making a formal mortgage application. When successful, if you have regular group credit life insurance, you might not even see the premiums. Instead, they’ll just be included in the interest on your loan. However, if you have a pre-existing medical condition/special contract, expect this to add extra cost to the cover, or the loan itself.
How Do I Set Up Life Insurance For My Mortgage? Conclusion
Of course it’s a good idea to insure your mortgage. It is the largest financial liability you will take out in your entire life, for a sum of money that you do not have in your bank account. For one thing, it protects your family from losing their home if you pass away or become unable to work. Additionally, banks and other financial institutions often require it to protect themselves from default risk. Insurance is usually group credit life insurance. However, it can occasionally be private life insurance and when you have the option, you should definitely see if there are better low cost international insurance alternatives available to you. Policies differ from one bank to another. If you have a serious illness, it may become more difficult to get a standard group credit life insurance policy. However, there are alternate (and more expensive) policies if this is the case.
