In Brief (TL;DR)
Decreasing term life insurance is the ideal solution for freelancers with a mortgage or loan, as it guarantees protection for their loved ones from the outstanding debt in case of unforeseen events.
Discover how it works, what the specific benefits are for the self-employed, and how to choose the best solution to protect your family from debt.
This way, the insured capital progressively decreases along with the outstanding balance of the mortgage or loan.
The devil is in the details. 👇 Keep reading to discover the critical steps and practical tips to avoid mistakes.
Buying a home or starting a business with a loan is a major step in many people’s lives, especially for freelancers and self-employed professionals. These projects, however, involve a long-term financial commitment that deserves proper protection. Decreasing term life insurance, often linked to a mortgage or loan, is a tool designed to protect your family and assets from unforeseen events. This type of insurance ensures that, in the event of the insured’s premature death, the outstanding debt is paid off, preventing the financial burden from falling on their heirs.
Mediterranean culture, and Italian culture in particular, places a central value on family and its security. In this context, the tradition of family protection meets the innovation of financial tools. Decreasing term life insurance perfectly embodies this synthesis: on one hand, it addresses an age-old need to protect loved ones; on the other, it does so with a modern, flexible solution that adapts to the loan’s balance. It’s no coincidence that interest in these policies is growing, as recent market statistics show.
What is Decreasing Term Life Insurance and How Does It Work
Decreasing term life insurance is a form of temporary life insurance (TCM) where the insured amount decreases over time, following a pattern similar to the outstanding balance of a mortgage or loan. In practice, the capital paid to the beneficiaries in the event of the insured’s death is higher at the beginning of the contract and gradually reduces, in parallel with the repayment of the loan installments. This mechanism makes it the ideal solution for those who want coverage specifically aimed at settling a specific financial commitment, without burdening their heirs.
This insurance formula ensures the debt is paid off in case of sudden death. If something were to happen to the mortgage holder, their heirs can use the insurance payout to settle the debt.
How it works is simple: when you sign up, you define an initial capital, usually equal to the mortgage amount, and a term, which matches the loan’s amortization schedule. The premium can be paid in a single upfront payment (often financed by the bank itself) or through periodic installments (annually, semi-annually, or monthly). The main feature is that, as the years go by, the coverage value adjusts to the outstanding debt, ensuring protection that is always proportional to the actual need.
Decreasing Term vs. Level Term
It’s important to distinguish between decreasing term and level term insurance. In the latter, the insured amount remains unchanged for the entire duration of the contract. This option is more suitable for those who want to leave a predefined sum to their loved ones, regardless of specific financial commitments. Decreasing term insurance, on the other hand, is specifically designed to cover a debt that reduces over time. The choice between the two therefore depends on the goal: protecting an investment like the family home or providing general financial support. For a freelancer with a mortgage on their office or first home, the decreasing term solution is often the most logical and cost-effective.
Is Mortgage Life Insurance Mandatory?
One of the most common questions is whether this policy is mandatory. Legally, in Italy, the only mandatory insurance when taking out a mortgage to buy a property is fire and explosion insurance. Life insurance, however, is optional. Nevertheless, lending institutions often “recommend” it or make it a condition for granting the loan, especially under certain circumstances, such as a high loan amount or when the applicant is the sole income earner in the household.
IVASS (the Italian Institute for the Supervision of Insurance) has intervened to regulate these practices, establishing that the bank cannot force you to buy its own policy. The lending institution is required to present the customer with at least three quotes, two of which must be from insurance companies not affiliated with the bank itself. This gives the consumer, including freelancers and professionals, the freedom to shop the market for the most advantageous solution, comparing different offers and choosing the one with the best value for money. It is always advisable to evaluate alternatives to the bank’s proposal, which may turn out to be more convenient.
Benefits for Freelancers and Self-Employed Professionals
For a self-employed professional, whose financial stability can be subject to more fluctuations than an employee’s, the protection offered by a mortgage life insurance policy is even more important. Taking out such a policy means shielding your family and business from a tragic event. In the event of death, heirs would not be forced to take on the remaining payments, risking the loss of the property or compromising their financial stability. This tool thus becomes an essential component of sound financial planning, a true insurance check-up for the future.
Another significant advantage is tax-related. Premiums paid for life insurance policies covering the risk of death or permanent disability are 19% tax-deductible from IRPEF, up to a maximum spending limit set by current regulations, which is currently €530. This tax benefit makes the policy not only a responsible choice but also a tax-efficient investment. For a self-employed professional, being able to count on every possible benefit is crucial. To learn more about savings opportunities, it’s useful to consult a tax deduction guide for the self-employed.
Integration with Other Coverages
The protection can be further expanded. Many mortgage life insurance policies offer the option to add riders, such as coverage for total and permanent disability or critical illness. These additional options provide financial support even if the insured, while still alive, loses the ability to generate income. For a freelancer, whose business depends entirely on their ability to work, an integrated accident insurance policy represents comprehensive and essential protection. It’s also possible to consider coverage for temporary job loss, although this is more common for employees.
Costs and Influencing Factors
The cost of a decreasing term life insurance policy depends on several factors. The main elements that insurance companies consider to calculate the premium are:
- Age of the insured: A younger age generally means a lower premium.
- Health status: Companies require the completion of a medical questionnaire and, in some cases, medical exams to assess the risk.
- Occupation and lifestyle: Risky jobs or being a smoker can affect the cost.
- Insured amount and mortgage term: Higher amounts and longer terms correspond to higher premiums.
On average, the cost of a mortgage life insurance policy can range from approximately 2.5% to 6.5% of the total loan amount. Given the variability, it is essential to request multiple personalized quotes to find the offer that best suits your needs and budget.
Conclusion
In an economic landscape characterized by uncertainty, decreasing term life insurance stands out as a fundamental protection tool for anyone with a mortgage or loan. For freelancers and self-employed professionals, it represents a responsible choice that combines the Italian cultural tradition of family protection with the innovation of flexible, targeted insurance products. Protecting a major investment like a home or professional office means ensuring peace of mind for yourself and your loved ones, securing the future against unforeseen events that could have devastating consequences.
Although not legally mandatory, this policy is an almost indispensable guarantee for those who are self-employed. The ability to freely choose the insurance company, without being tied to the bank’s offer, and the tax benefits of deductibility make this product even more attractive. Getting informed, comparing options, and consciously choosing the most suitable coverage is the first step toward building a solid and protected future, where major life projects can grow without the burden of risk.
Frequently Asked Questions
No, mortgage life insurance is not required by law. The only mandatory coverage for mortgages in Italy is for fire and explosion risk on the property. However, the bank may require it as a condition for granting the loan, especially for large amounts. In any case, you are not obligated to accept the policy offered by the bank: by law, you are free to choose an external insurance company, which often offers more favorable terms.
For a freelancer, this policy offers fundamental security. In the event of premature death, the insurance pays off the outstanding balance of the mortgage or business loan. This protects your heirs, who won’t have to cover the debt with their personal or family assets. It allows you to pursue your professional and personal projects with greater peace of mind, knowing that your loved ones are protected from serious unforeseen events.
Yes, premiums paid for life insurance policies that cover the risk of death or permanent disability of more than 5% are 19% tax-deductible from IRPEF. The maximum amount on which the deduction can be calculated is set at €530 per year. To take advantage of the tax benefit, the payment must be traceable (e.g., via bank transfer or card) and the expense must be documented in your tax return, by filling in lines E8 to E10 of the 730 Form.
In the event of early mortgage repayment, you are entitled to a refund of the portion of the insurance premium that has been paid but not used. The insurance company is required to return the amount corresponding to the remaining coverage period. As an alternative to a refund, you can request to keep the insurance coverage active until its natural expiration, unlinking it from the mortgage.
Comparing multiple quotes is your right and a smart choice. Policies offered directly by banks can be more expensive than those from external insurance companies. The law requires the bank to present you with at least two quotes from companies not affiliated with its group. Independently searching the market for a solution allows you to find the coverage that best suits your needs at a more competitive price, resulting in significant savings on the total cost of the insurance.
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