When buying with mortgage credit, banks usually require life insurance and may require home insurance, but you have the right to freely choose the insurer, as long as the policy meets the bank's minimum conditions.
Key points
This guide explains the insurance usually associated with buying a house and mortgage credit in Portugal, your freedom to choose the insurer, and what to compare between offers.
1. Life insurance and home insurance
Life insurance linked to a mortgage guarantees repayment of the outstanding loan to the bank if the borrower dies or becomes disabled, protecting both the bank and the borrower's family from an uncovered debt.
Home insurance protects the property against risks such as fire, water damage, natural events or civil liability, and is usually required by the bank as security linked to the property pledged as collateral for the loan.
- Understand the purpose of life insurance linked to the loan.
- Understand the purpose of home insurance.
- Confirm which of these your bank requires.
2. Why the bank requires this insurance in practice
While life insurance is not a general legal requirement for every loan, in practice most credit institutions require it as a condition for granting financing, protecting the loan's security.
Confirm the minimum conditions required by the bank — such as the sum insured, mandatory coverage and beneficiaries — before taking out or comparing insurance, to make sure the policy you choose meets those requirements.
- Confirm the minimum insurance conditions required by the bank.
- Understand this requirement comes from institutions' practice, not just the law.
- Check the required sum insured, coverage and beneficiaries.
3. Freedom to choose the insurer
Even though the bank can require life and home insurance, you have the right to freely choose the insurer and are not required to contract with the insurer linked to the bank where you request credit.
To preserve this freedom of choice, Banco de Portugal published a code of conduct on optional bundled sales: banks may only sell optional products together if they are also sold independently. If the insurance meets the minimum required conditions, the bank cannot refuse the policy.
- Confirm you can freely choose the insurer.
- Understand what optional bundled sales means.
- Confirm the bank cannot refuse a policy that meets the minimum conditions.
4. Life insurance portability
It is possible to transfer an existing life insurance policy to a new mortgage, a process known as insurance portability, provided the new loan requires insurance conditions equivalent to the current policy's.
The insurer can only request updated health information if there is a change in risk, such as an increase in the sum insured or the term; for a mere change of beneficiary, it cannot require a new risk assessment.
- Understand it is possible to transfer life insurance between loans.
- Confirm whether the new loan requires equivalent conditions to the current policy.
- Know when the insurer can request a new risk assessment.
5. What to compare between insurance offers
When comparing life insurance offers, consider the sum insured, included and excluded coverage, the monthly or annual premium, and how the sum insured is adjusted over the loan's term.
For home insurance, compare the insured value of the property and its contents, specific coverage — such as natural events or civil liability — and the excess applicable in the event of a claim.
- Compare sum insured, coverage and premium across life insurance offers.
- Compare insured value, specific coverage and excess for home insurance.
- Request offers from more than one insurer before deciding.
Frequently asked questions
Am I legally required to have life insurance to buy a house?
There is no general legal requirement, but in practice most banks require this insurance as a condition for granting mortgage credit.
Can I take out insurance outside the bank?
Yes. You have the right to freely choose the insurer, as long as the policy meets the bank's minimum required conditions.
Can the bank refuse my external insurance?
It can only refuse if the policy does not meet the minimum conditions required for the loan; if it does, refusal is not allowed under the rules on optional bundled sales.
Can I keep the same life insurance if I switch loans?
In many cases yes, through insurance portability, provided the new loan accepts conditions equivalent to the existing policy's.
Official sources
Consult the public bodies that support this information directly.