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For many, buying a home is a lifelong project, a milestone built on dreams and sacrifices. However, the path to achieving it is often complex, and the key step is almost always taking out a mortgage. It is precisely during this delicate phase, when the focus is on rates, spreads, and loan terms, that a pitfall can be hidden: the bank’s request to sign one or more insurance policies as a condition for granting the loan. This practice, known as “bundling” or “tying,” limits consumer choice and can turn into an unjustified cost. Understanding this phenomenon, knowing your rights, and being aware of current regulations is the first step to protecting yourself from this often unfair business practice and ensuring that the dream of homeownership doesn’t turn into an unexpected burden.
The goal of this article is to provide clarity. We will analyze the difference between mandatory and optional policies, examine what the law says, and provide practical tools to recognize and counter undue sales pressure. Awareness is the best protection for every consumer.
When discussing insurance policies tied to a mortgage, it’s crucial to distinguish between what is required by law and what is optional. The only truly mandatory insurance for anyone taking out a mortgage is a fire and explosion damage policy for the property. This coverage protects the bank, which holds a lien on the property, by guaranteeing it can recover the outstanding loan balance if the asset is destroyed. However, the law does not require you to purchase this policy from the lending institution. The customer has the full right to shop the market for a more affordable solution, as long as it meets the bank’s minimum requirements. For more details on this specific obligation, it’s helpful to consult the guide on fire insurance for mortgages, which is mandatory but not with the bank.
Alongside this, banks often propose a series of optional coverages, such as life insurance policies (Credit Protection Insurance – CPI), job loss insurance, or accident insurance. These policies protect the borrower and their family, but signing up for them cannot be imposed as a condition for obtaining the loan. It is precisely with these coverages that the most aggressive sales tactics are focused, turning a protection opportunity into a costly and unsolicited obligation. A comprehensive guide on mortgage insurance can help you better understand obligations, costs, and protections.
The forced sale of insurance policies at the same time as a mortgage is considered an unfair business practice because it significantly limits the consumer’s freedom of choice. This strategy, known as “tying,” exploits the customer’s vulnerable position, as they feel compelled to accept unfavorable additional conditions just to get the desired loan. The Italian Competition Authority (AGCM) has intervened multiple times, fining numerous credit institutions for exerting undue pressure on consumers. The contested conduct involves making customers believe that subscribing to the bank’s policy is an essential requirement for mortgage approval, without adequately informing them of the product’s optional nature or the possibility of finding an alternative on the market.
This de facto imposition violates the principles of transparency and fairness established by the Consumer Code. Supervisory authorities, such as IVASS (Institute for the Supervision of Insurance) and the Bank of Italy, have reiterated that intermediaries must present information clearly, distinguishing mandatory products from optional ones and always specifying the customer’s right to choose an external insurance company. Systematic bundling, with internal policy penetration rates exceeding 80%, has been considered by authorities as a clear sign of potentially aggressive practices.
Italian and European regulations are clear in protecting consumers from tying practices. The “Crescita 2.0” Decree-Law (D.L. 1/2012) states that a bank cannot force a customer to take out a life or property damage policy along with a mortgage. The lending institution is required to present the customer with at least two quotes from insurance companies not directly affiliated with the bank itself. This obligation aims to ensure genuine comparison and stimulate competition. If the customer presents an external policy that meets the bank’s minimum requirements, the bank is obliged to accept it without changing the mortgage terms offered.
IVASS has further strengthened these protections with specific regulations, requiring intermediaries to provide clear and complete pre-contractual documentation (such as the IPID, Insurance Product Information Document). Furthermore, the European Insurance Distribution Directive (IDD), adopted in Italy, focuses on the customer’s needs, obliging distributors not to condition the granting of a loan on the purchase of non-mandatory coverage. The law also provides for a right of withdrawal: the consumer has 60 days from the signing of the loan agreement to withdraw from the tied insurance policy without any penalty.
The imposition of a bank’s policy can have a significant economic impact on the total cost of the mortgage. The coverage offered by credit institutions is often much more expensive than what can be found on the independent insurance market. This price difference results in a greater expense for the borrower, which inflates the Total Cost of Credit. It is crucial that this cost is correctly included in the calculation of the APR (Annual Percentage Rate), the indicator that allows for a comparison of the true cost-effectiveness of different loan offers. To better understand the difference between the various cost indicators, it’s useful to read the guide on Nominal Rate and APR, which reveals the real cost of the mortgage.
Another critical aspect concerns how the premium is paid. Banks often propose a “single upfront premium,” the amount of which is financed along with the mortgage principal. This means the customer not only pays for a more expensive policy but also pays interest on it for the entire duration of the loan. This practice, if not managed transparently, can border on anatocism, which is the calculation of interest on interest. Comparing multiple quotes and choosing a policy with an annual premium payment can lead to significant savings, lightening the overall debt burden and ensuring greater flexibility.
Recognizing a forced-selling attempt is the first step to protecting yourself. Pay attention to warning signs, such as a bank advisor who is vague about the mandatory nature of the policy, explicitly links mortgage approval to signing the insurance, or is reluctant to provide alternative quotes. If you are told that “without this policy, the application won’t proceed” or “with our insurance, the mortgage terms are better,” you are likely facing undue sales pressure. Transparency is not an option but an obligation: before signing any document, it is crucial to understand every detail, as explained in the guide to the mortgage deed.
To defend yourself, act methodically. Explicitly ask if the proposed policy is required by law or if it is a commercial condition imposed by the bank. Always demand the pre-contractual documentation (insurance IPID and ESIS for the mortgage) to analyze costs and conditions at your leisure. Clearly state your intention to get an external quote and compare offers. Once you find a valid alternative policy, present it to the bank. Remember that you have the right to freely choose the most suitable and affordable insurance coverage for you.
If the bank rejects an external policy that meets the minimum required criteria, or continues to insist on you purchasing its product, it’s important not to give up and to assert your rights. The first step is to formalize your position through a written complaint sent to the credit institution’s Complaints Office via certified email (PEC) or registered mail with return receipt. The bank is required to respond within a specific timeframe. If the response does not arrive or is unsatisfactory, you can turn to the Banking and Financial Arbitrator (ABF) for free, an out-of-court dispute resolution body that can make decisions binding on the intermediary.
At the same time, it is advisable to report the unfair business practice to the competent authorities. A report to IVASS (for purely insurance-related matters) and to the AGCM (for violations of competition and consumer protection laws) can help shed light on the institution’s behavior and trigger an investigation. These reports are crucial not only for resolving your own case but also for protecting other consumers from the same conduct. In particularly complex situations, the support of a consumer association or a specialized lawyer can be decisive.
Taking out a mortgage is a fundamental step, and approaching it with the right preparation makes all the difference. The practice of forcibly bundling insurance policies is an obstacle that limits consumer freedom and unnecessarily inflates costs, but it is not insurmountable. The key to overcoming it is knowledge: knowing how to distinguish between the mandatory fire and explosion policy and optional coverages, being aware of your right to choose freely on the market, and knowing the available protection tools. Italian and European regulations, along with the work of authorities like AGCM and IVASS, provide a solid foundation for defending yourself. You should never feel in a weak position when dealing with the bank. Comparing, asking questions, doing your research, and, if necessary, filing a complaint are actions that transform a simple applicant into an informed consumer who is in control of their financial choices.
No, the bank cannot force you to sign its policy to get the mortgage. This is considered an unfair practice. The only legally mandatory insurance is for fire and explosion damage to the property. You have the right to freely shop the market for a policy with equivalent or superior coverage to what the bank requires. The credit institution is obligated to accept it without changing the mortgage terms.
In addition to the legally required fire and explosion policy, banks often offer optional coverages. The most common are life insurance policies (Term Life Insurance) and credit protection insurance (PPI – Payment Protection Insurance), which can cover events like disability, serious illness, or job loss. These policies are designed to ensure the repayment of the outstanding debt in case of serious unforeseen events, protecting both the debtor and the bank.
Yes, you can change the policy. For new contracts, you generally have 60 days to exercise your right of withdrawal by sending a formal notice to the insurance company. Even after this period, you can cancel the bank’s policy and replace it with a more affordable one, as long as you maintain the minimum required coverage. Furthermore, if you pay off or transfer your mortgage (e.g., through refinancing), you are entitled to a refund of the portion of the insurance premium that has been paid but not used.
To find a more cost-effective alternative, compare quotes from different insurance companies, not just those offered by the bank. Carefully evaluate not only the price but also the coverage offered, limits, deductibles, and exclusions. Make sure the new policy meets the minimum requirements specified by the bank in the information document. You can consult insurance brokers or use online comparison tools to get a broader view of the market and choose the solution that best suits your needs.
If the bank continues to pressure you into signing its policy, you can report the behavior. First, file a written complaint directly with the bank. If the response is unsatisfactory or doesn’t arrive, you can contact IVASS (the Institute for the Supervision of Insurance) for insurance-related issues and the Banking and Financial Arbitrator (ABF) for disputes with the bank. In more serious cases, you can also file a report with the Italian Competition Authority (AGCM) for unfair business practices.