Insurance in Portugal
If you are considering buying a property in Portugal and you need to contract a home insurance policy, there are many issues to consider. It’s essential that you know the home insurance requirements, legal issues, and market offers in Portugal. We work with professional insurance partners to assist you how to find insurance.
Which insurance is needed when buying a house in Portugal?
It is mandatory for buildings under horizontal property ownership in Portugal to have a fire insurance policy that covers the risk of damage caused by fire to its walls or structure. The policy must cover each unit and the common parts of the building (including the roof, stairs, elevators, and garage).
The fire insurance must be taken out by the owners of each unit or fraction, which can opt to contract a policy on their own (eventually including it in a Multi-Risk insurance policy) or subscribe to the condominium Fire Insurance policy, within the legal deadlines applicable.
If you buy real estate in Portugal through credit with a bank or any credit institution, you will be demanded to contract two different insurances associated with your credit:
- Life insurance (‘seguro de vida’), which protects the house credit holders in case of death or incapacity.
- A Home multi-risk insurance (seguro multirriscos habitação), is aimed at protecting the property (which is given as a guarantee) from a range of damages it might suffer, including the risk of damage caused to the property by fire – that is, the mandatory fire insurance.
These insurances are required to secure the amount the bank loans to its client for the acquisition of a house or property.
Why are there two demanded insurances for a house in Portugal?
Life insurance is demanded because you, as a loan holder, are subject to unexpected events or misfortunes. The Multi-Risk insurance will cover the risks associated with the house. So, by taking on an insurance policy, if something happens either to the insurance holder or to the house itself, the insurance company will cover the related expenses or debts, always within the limits of the specific conditions of your contracted policy, naturally. So, taken in combination, both insurances serve to protect the home, the family, and the household’s finances.
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Things to consider before contracting home insurance in Portugal
There are many insurers operating in Portugal. Insurance is a booming sector and, as such, characterized by many changes, among which are frequent mergers and acquisitions. Consequently, the Portuguese insurance companies’ landscape is made of Portuguese companies, but also international companies and even companies that have associated with each other to expand their client portfolio.
How to find authorized insurance companies and mediators in Portugal?
Insurance and reinsurance activities and insurance mediation in Portugal are regulated and supervised by The Insurance and Pension Funds Supervisory Authority (Autoridade de Supervisão de Seguros e Fundos de Pensões – ASF). This authority also regulates the activity of pension funds and their respective management entities.
By accessing the site of ASF, you can search its database for several important information, namely all companies that have the authorization to operate as:
- Insurance companies;
- Mediators;
- Pension funds management entities;
- Insurance company’s corporate history.
You can also do a search based on the nationality of the companies, obtaining a list of:
- National insurance companies operating in Portugal;
- National insurance companies operating abroad;
- Foreign insurance companies operating in Portugal through a branch.
Don’t settle for the bank insurance proposal (unless it’s the best you can find)
Although the Life Insurance and the Multi-Risk insurance are required by the bank that grants the loan when buying a house in Portugal, you are not obligated to contract these insurances with that bank. Unless you are sure the bank’s proposal is the best for you, don’t settle for it. You should consider careful market research and contract an insurance company that best meets your needs.
As long as the insurance policies include the necessary coverages and requirements demanded by the financial institution that grants the housing credit, you are free to contact home insurance with any insurance company operating legally in Portugal. But there are exceptions to consider.
You must be aware that, when proposing the loan conditions, the bank might lower the spread (in simple terms, the profit earned by a bank when granting a loan) slightly to engage you as a client, but it will compensate for this advantage by increasing the price of the Life Insurance or other products you contract. So, when contracting additional products to the credit, like insurance, the bank considers them as bonuses and might lower the loan spread.
In some cases, there might be a provision in the house loan contract which states that, in case of a change of any of the conditions, you are subject to the loss of the spread bonus (bonificação do spread) in the housing credit. But in most situations, that is not the case and you are free to transfer your insurance without any penalties.
Independent insurance companies, mediators, or brokers in Portugal?
In Portugal, you have several possibilities when it comes to choosing a housing insurance company. It is of vital importance that you do good market research before selecting the agency with which you are going to contract your insurance.
You have 3 possible options to consider:
- Insurance companies
You can find trusted companies that operate in Portugal for many decades, either national or international. Fidelidade Seguros, Generali Seguros, Allianz Portugal (with BPI Portugal as a strategic partner), Açoreana (which operates in the Azores autonomous region), are some examples.
- Insurance mediators
Insurance mediators also represent insurance companies, either in exclusivity or working with several ones.
A mediator working with several insurance companies operates in a similar way to an insurance broker. As a multi-insurer, its business strategy involves the collaboration with several insurers, meaning that they are always able to present the insurance products and contracts that are most adequate to the needs of their clients. This allows clients to choose among several proposals, in accordance with the mediator’s expert advice, after having consulted the market and obtained the best conditions in terms of price and risk coverage.
- Insurance Brokers
Insurance brokers are formally independent in relation to any insurance company. They work with the whole market of operating insurance companies in Portugal. Multi-option and independent advice and assistance are especially relevant since insurers and exclusive insurance agents do not have this characteristic, and therefore will hardly offer you the most convenient insurance for your specific needs.
Insurance brokers, like multi-insurance mediators, will offer you the best solution for your purposes taking into account the best offer at a given moment. But, unlike mediators, brokers work with the entire insurance market offer to present you the best possible solution, independently of partnerships or campaigns.
MDS, founded in Portugal, is a big wholesale broker operating in the country, as well as internationally.
Conditions that insurance proposals in Portugal must include
After careful research of the market offer, you should ask for several simulations for your intended Home Insurance policies. Take your time and compare the pros and cons of the different possibilities you are offered by the housing insurance providers. In order to do that, the offers must include and be clear about all the following conditions:
- What are the coverages of the policy?
- What are the exclusions of the policy?
- What are the options for deductibles and what’s their impact on the price of insurance?
- Factors that affect the price of insurance (e.g. having a burglary protection system or fire fighting facilities).
- What criteria does the insurer use to determine the value of claims?
- And, finally, what is the premium amount?
These are the main aspects to analyze in the first stage. Other information you must be aware of will be detailed in the entries below.
Home loan Life Insurance in Portugal
The main function of Life Insurance is to protect the home loan holders – the insured persons – and their families in case of death or permanent invalidity.
Its vital importance is that it safeguards the financial balance of families, assuring the total or partial payment of the home by the insurer in the event of the mentioned fatalities.
Life Insurance coverage – what to include?
The insurance premium varies to the same extent as the coverages contracted. The most common coverages in Life Insurances are:
- Death;
- Total and Permanent Disability (ITP – Invalidez Total e Permanente);
- Absolute and Definitive Disability (IAD – Invalidez Absoluta e Definitiva);
Banks require coverage for death and at least one of the other two coverages.
ITP is the most comprehensive and can be triggered when you are subject to a hazard resulting in a level of disability above 55% (Metflife). Unfortunately, no one is free from having a heart attack or even an accident that puts us in a wheelchair. ITP is, for that reason, the most advisable coverage – at least because it automatically pays for the house.
IAD is more restrictive since it can only be triggered when the level of disability of the loan holder is so high, practically in a vegetative state, and dependent on third-party support.
As an insurance beneficiary, you should choose the covers according to the risks you might be most prone to. For example, if your family has a history of heart disease at a young age, make sure that you take out the coverage that safeguards these eventualities. So, besides the most common covers mentioned above, consider including covers like:
- Diagnosis of serious diseases;
- Death due to illness, accident, or traffic accident;
- Reimbursement of hospitalization expenses due to an accident.
How is the premium calculated?
The Life Insurance premium is the amount to be paid for the insurance. It is calculated according to the insured capital and the age of the holders.
Although each banking institution or insurance company has its own internal criteria, there is a common, simple logic to it: the higher the risk for the insurer, the higher the price to pay for the insurance. The common criteria that have the most influence on the final price are:
Regarding the loan or Life Insurance holders:
- Age;
- Health status;
- Professional activity;
- Geographical mobility of professional activity;
- Resident or non-resident status
Regarding the loan itself:
The outstanding capital – is the amount of capital due by the borrowers. Given this, it’s a standard practice for insurance companies to ask their potential clients for their medical history, or common family diseases.
Payments and increases
Generally, the payments of a home Life Insurance are made on a monthly basis. Although the insured capital is constant, the premium is updated every year, and this is not a negligible feature.
It is not uncommon that, for lack of information or advice, Life Insurance policyholders are unaware of the evolution of the insurance premium. They might only notice the change in the premium when there is a sharp increase in its payment value.
Do monitor the evolution of the premium over the course of the contract. Ask for a premium review whenever you change something in your life that decreases the risk to the insurer. And, if the insurance premium becomes unaffordable, consider changing your insurance! The abundance of insurance companies in Portugal means that there are plenty of insurers here that will offer you a more advantageous policy to get you as their client. Being attentive pays off.
Home Multi-Risk Insurance
Home multi-risk insurance (Seguro Multi-Riscos) gives the property a wide range of additional coverages – besides the mandatory fire coverage for all houses in the horizontal property regime – providing a bigger safety level to the insured property.
When a bank grants a house acquisition loan, it obligates its clients contractually to include a Home Insurance for the property, besides a Life Insurance policy for the loan holders, as mentioned above in this guide. But even in the cases where there isn’t an associated credit agreement, the Multi-Risk insurance is an important investment that can be a great help for homeowners in the case of unexpected events such as a flood or a burglary.
Multi-risk insurance and coverages
Multi-risk insurance includes a set of general, predetermined covers to which it’s possible to add other complementary covers. The contracted coverages are the main factor that determines the insurance premium. The Multi-Risk coverages may include:
- Damage caused by fire;
- Damage caused in the building, in the fraction itself, or in other fractions, by the occurrence of floods and landslides, lightning strikes or explosions, storms, strong winds or cyclones;
- Electrical risks (damage to electrical appliances caused by short circuit or overload);
- Aesthetic damage to the facade of the residential building;
- Damages due to problems in the water distribution and sewage systems;
- Demolition and removal of rubble;
- Compensation for theft or robbery;
- Civil liability of the insured and people in his household for involuntary damage (compensation of third parties for damage caused – for example, objects falling from the balcony of the house onto people or vehicles);
- Protection in case of earthquakes, volcanic eruptions, and tsunamis;
- Temporary accommodation in case of temporary deprivation of the property.
Consider your house features and risks carefully and be aware that everything that is not on the policy coverage list (the so-called particular conditions of the policy) is excluded from coverage.
Multi-risk insurance premium
The Multi-Risk insurance premium is calculated according to the coverages contracted. Although in Portugal companies charge very similar prices for Home and Life Insurances, their policy proposals might differ substantially regarding the coverages and exclusions.
So it’s implied that your decision regarding which insurance policy to contract shouldn’t be taken solely on its price. For instance, if the house to secure is old or located in an area of high risk of seismic phenomena (like Lisbon or Algarve), you should include coverage for those risks.
Just as for Life Insurances, it’s important to scan the market offer and ask for several policy proposals from different insurance companies, brokers, or mediators. In order to make a realistic policy simulation, the main data you should gather about the characteristics of the property include:
- Year of construction;
- Location of the property (this will determine the risk of some natural occurrences);
- The value of the contents;
- Presence or absence of alarm systems and protection against theft;
- Surveillance in the building or villa;
- The purpose of the property: living or renting.
- Securing your possessions – the Seguro de Recheio optional feature
Premium Home Insurance options in Portugal
As an optional feature, not to be underestimated, the Multi-Risk Insurance offers the possibility of securing your personal belongings or possessions and all the existing furniture in the house (‘Seguro de Recheio’). The value of the insured capital in the Seguro de Recheio equals the replacement cost of the goods.
In the insurance proposal, all the objects to be secured and their value must be clearly identified. If there are goods that are rare or of higher value like works of art and jewelry, they should be specifically identified. This can be done through photographs and descriptions of their characteristics, adding to an attributed value per piece – namely with receipts proving purchase and ownership of the items.
In the event of a claim, the burden of proof lies with the insurance holder, who has to prove that the damage (such as a burglary or a vandalism act) occurred and that the property belonged to him or was in his custody. Hence the importance of keeping all documentation proving the existence and value of the insured goods.
What is the insured capital in the Multi-Risk Insurance?
When subscribing to multi-risk insurance, the insurance holder is responsible for establishing, at the beginning and along the contract duration period, the amount of the insured capital – the maximum amount the company will pay in case of a claim. Even if the damages your house endures are higher than the insured capital for the covered risk, the insurance company will only pay the contracted amount.
This capital should correspond to the total reconstruction value. Thereby, when making any improvements to the property, the insurance holder should contact the insurance company or bank to update that value and guarantee full coverage.
In the case of houses or buildings that are to be demolished or expropriated, the insured capital equals its Tributary Patrimonial Value (Valor Patrimonial Tributário). That value, expressing the real value of a property in a given year, is set out in the Municipal Property Tax Code (CIMI) and can be consulted in the Caderneta Predial (the document that contains all tax-relevant information about the property).
At Pearls of Portugal, we simplify all the search procedures and put you in contact with our trusted insurance partners, thus achieving the best deal to boost your savings and grant you the security you need for your property.
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