Buying a home in Tenerife almost always ends with the same conversation at the bank: “we will arrange the life cover here”. This is where it pays to know your rights — people overpay on this point for years.
Is it compulsory
Life insurance with a mortgage is not required by law in itself. But the bank may make it a condition of granting the loan — and almost always does, because it is protecting its own risk: if the borrower dies, the insurer clears the debt rather than the family.
The key point: it cannot oblige you to buy the policy from the bank itself.
What the law says
Spanish mortgage credit legislation expressly prohibits tying you to a particular insurer. The bank may require insurance to exist and may set requirements for the cover, but it must accept a policy from any other company where the cover is equivalent.
And crucially: the bank may not worsen the loan terms — raise the rate, withdraw a discount — simply because you insured elsewhere. In practice banks often offer a reduced rate “as a package” with their own policy; that is lawful, but you are entitled to price both and choose.
Compare the total cost over the life of the loan, not the headline rate: a 0.3% rate discount may not cover the difference in policy price across 25 years.
The decreasing-capital policy
Mortgages have their own construction: decreasing-capital life insurance (capital decreciente). The sum insured falls in step with the outstanding balance.
The logic is simple: in year one you owe the bank almost the full amount; fifteen years in, considerably less, so less needs covering. Such a policy is cheaper than standard fixed-sum life insurance because it does not charge you for what is already repaid.
Cover normally includes not only death but disability — the scenario where the borrower is alive but can no longer service the loan. That is the one that most often ruins families.
What to check in the policy
- Does the sum track the outstanding balance, and how is it recalculated.
- Is disability included — without it only half the risk is covered.
- Who is the beneficiary. If it is the bank, the money goes straight to repayment. If it is the family, they decide whether to clear the mortgage.
- The health declaration — fill it in honestly or there will be no payout. How that works is covered in the article on chronic conditions and preexistencias.
- Can you switch insurer later — yes, at renewal; the bank must accept an equivalent policy.
If the mortgage is already in place
You can still change insurer: the policy is annual, and at renewal you may move to another company and notify the bank. The cancellation procedure is the same as for a health policy — how it is done.
What next
Before signing the bank’s package, price the alternative — over the term of a loan the difference often runs into thousands of euros.
Message us in the chat: we will quote a decreasing-capital policy against your outstanding balance and term — free and with no obligation, so you have something to take to the bank.