Can the bank insist on its own insurance for your loan? The equivalent-cover rule

What does the law say?

Section 14/A of Act CLXII of 2009 on credit provided to consumers (Fhtv.) – which transposes Article 12 of Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property – settles the question in three steps. Subsection (1) lays down the prohibition of tying: a mortgage loan agreement may not be concluded in such a way that the consumer can conclude it only together with a related product or service. Subsection (2) permits bundled sales, provided the credit agreement can also be concluded without the related product. Under point (b) of subsection (3), in the case of a mortgage loan the lender may require the consumer to hold savings linked to the credit agreement, a savings-type life insurance policy, or property insurance on the property serving as collateral. Subsection (4) then contains the key sentence: the lender must also accept insurance from a provider other than its preferred provider if that insurance is at least equivalent to the insurance offered by the lender, taking into account the sum insured and the scope of cover. The EU's consumer information portal (Your Europe) puts it the same way: lenders may require insurance, but in every case you have the right to choose from other insurers' offers, provided the cover is equivalent.

What can the bank require – and what can it not?

The bank may require the property to have valid property insurance and may specify what it expects of that insurance: the scope of cover (typically at least fire and natural perils), the minimum sum insured, that the insurance remains in force throughout the term of the loan, and that the policy carries the loan-security (mortgagee) clause, under which, in the event of a loss, the bank is entitled to the payment up to the amount of its claim. These conditions differ from bank to bank: some require the loan amount as the minimum, others the reinstatement (rebuilding) value, so the first step in every case is to ask for the bank's written requirements. What the bank may not do: it may not make the loan conditional on taking out the insurance with it or with its partner, and it may not reject an equivalent policy merely because it is with another insurer. Under Section 2/A of NGM (Ministry for National Economy) Decree 3/2016 (I. 7.) on the rules for information on mortgage loans, in force since 3 June 2023, banks must, when providing personalised information on a mortgage loan, also present the Certified Consumer-Friendly Home Insurance calculator of the MNB (Hungary's central bank and financial supervisor), so that the client does not see only the product of the bank's partner; according to the MNB's guidance, certified consumer-friendly home insurance policies can also be linked to mortgage loans as loan-security home insurance.

Equivalence in practice: sum insured, scope of cover, clause

The law names two criteria, and it is worth comparing these point by point with the bank's requirements. As regards the sum insured, as a broker I suggest aligning it not with the loan amount but with the reinstatement value of the property – according to the MNB's consumer-protection advice, you should insure the property for an amount that covers rebuilding it if it is destroyed. If you insure only for the bank's minimum, you may be underinsured when a loss occurs, and the insurer pays proportionally under the policy conditions: the loan is secured, but your own home is not. As regards the scope of cover, compare the bank's list with the policy conditions: fire, lightning, storm, flood, earthquake and the other natural perils should be included if the bank requires them. The clause, in turn, is not the bank's document but the insurer's: it can be requested when the policy is taken out or later, and the insurer issues it in favour of the bank, typically together with the policy or as a separate certificate – its form varies from insurer to insurer, and banks may also specify their own clause wording. The insurer pays only for what is an insured event under your contract – the clause does not change this; it only settles to whom the insurer pays.

How to use a policy arranged through a broker for your loan

The sensible order is as follows: first, ask for the bank's written insurance requirements – scope of cover, minimum sum insured, clause wording, submission deadline. Then, if you already have a policy, it is worth comparing it with these requirements; if you do not, or it does not meet them, the competitive quotation is based on a needs assessment that also includes the bank's requirements, as I described in the article on how I work. You sign the chosen proposal, I forward it and request from the insurer the clause or the confirmation of cover, which you submit to the bank – that remains your task, but I prepare the document. Timing matters: the policy with the clause typically has to be with the bank before the loan is disbursed, so do not leave it to the last few days. In this case, too, you pay no separate fee for the advice. And there is no need to argue in the bank branch: it is enough to refer to the relevant section of the law and to ask for the bank's own written requirements.

The package discount, and what is worth calculating

The law does not prohibit bundled sales, so a bank may attach an interest-rate or fee discount to insurance taken out with its own partner. This is not unlawful, but before deciding it is worth seeing the full picture: the value of the discount over the term of the loan, the premium and cover of the partner insurance, and whether cancelling that insurance, should it later become unfavourable, would mean losing the discount. I do not give premiums or discount rates here, because they vary by bank and over time – what matters is the method: compare two total costs, not the insurance premium with the discount. If the bank does not accept an equivalent policy, ask for its reasons in writing; if the reasons do not refer to the sum insured or the scope of cover, the MNB's consumer-protection procedure and the Financial Arbitration Board (PBT) are the routes to redress. The article on the difference between a broker and an agent helps here too: in a bank branch you typically see one insurer's product, whereas through a broker you see the products of several insurers, tailored to the bank's requirements.

What to do in practice: ask for the bank's written insurance requirements; compare the scope of cover and the sum insured with your existing or new policy, and insure for the reinstatement value; ask the insurer for the loan-security clause and submit it by the deadline; if you are offered a package discount, calculate the total cost; if the bank refuses your policy, ask for written reasons.