Is mortgage life cover compulsory in Portugal?

The law bans tied selling, and opens an exception in the next sentence

The question always arrives in the same order: first you discover there is a life policy attached to the mortgage, then you ask whether it is compulsory. The short answer is not compulsory by law, and the long answer sits in a single article.

Article 11(1) of Decreto-Lei n.º 74-A/2017 says the bank may not "make the conclusion of the credit agreement conditional on the consumer acquiring other financial products or services". That is the rule: compulsory tied sales are prohibited. But the sentence ends with "with the exception of those provided for in the following paragraph", and the following paragraph is where life insurance lives.

Paragraph 2(b) allows the bank to require "one or more suitable insurance contracts related to the credit agreement, in which case the lender must accept the insurance contract of a provider other than its preferred one, if that contract safeguards a level of cover equivalent to the contract proposed by the lender".

That provision is worth reading twice, because it has two halves and most consumers only know the first. The first half gives the bank the right to require the insurance. The second half gives you the right to satisfy it wherever you like, and turns it into an obligation on the bank: it must accept.

In practical terms: the obligation to hold life cover comes from the credit agreement, not from the law. Every Portuguese bank includes it, which is why in real life the insurance is unavoidable. What is avoidable is buying it from the bank.

The insured capital is the debt, which is why the premium falls

Before comparing offers, there is a mechanic that moves the result by thousands of euros.

On a life policy attached to a Portuguese mortgage with decreasing capital, the insured sum is the capital you still owe the bank. Because that capital follows the loan's amortisation schedule, it falls with every instalment, and the premium falls with it.

On a loan with €150,000 outstanding, 30 years to run and a TAN of 3.3%, with a policy costing €420 in the first year:

Added across the thirty years, the insurance costs €7,530.36.

The calculation almost everyone makes, €420 × 30 years, gives €12,600. A difference of €5,069.64, or roughly 67% more. That is not a rounding artefact: it is what happens when you multiply a falling premium by a whole term as if it were fixed.

The same mechanic explains the gap between the two capital types. With constant capital, the insured sum stays fixed at €150,000 for the whole term and the premium does not fall: the €12,600 becomes the real cost. It is a more expensive policy which, at the end of the loan, is insuring €150,000 against a debt of only €7,744. The difference does not go to the bank, it goes to your heirs, which may be exactly what you want. But it is a choice, and it should be made knowing the price.

The figure that decides is the spread, not the premium

Here is the part almost no insurance comparison performs.

If the bank cut your spread because you took its policy, declining it makes that discount fall away. That is lawful, subject to one transparency condition: article 11(3) requires the bank, when it offers additional products "as a way of reducing the commissions or other costs of the credit agreement, in particular the interest-rate spread", to present "an APRC reflecting that reduction" and to state "clearly and expressly that its actual application is conditional on taking the additional financial products or services".

So the increase has to be written into the offer before you sign. What the offer does not do is the arithmetic.

Continuing with the same loan, with an alternative policy at €240 a year, 43% cheaper than the bank's, and a 0.20 percentage-point increase in the spread:

A policy 43% cheaper destroys €2,761.05 of value. The saving on the insurance is real, but it is smaller than the interest bill, and the extra €16.64 a month on the payment looks small precisely because it is spread across three hundred and sixty months.

The tipping point in this example sits at roughly 0.10 percentage points: at 0.10pp switching still wins by €243.21; at 0.11pp it already loses €56.30. And at 0.30 percentage points the increase costs €9,012.67, more than the €7,530.36 the bank's policy costs in its entirety. At that level not even a free policy would pay off: the highest alternative premium that would still make sense is zero.

Running the calculation backwards gives a number that is useful to negotiate with: in the 0.20pp scenario, only a policy at €86.01 a year or less would stop destroying value. If the best offer you can find sits above that, the answer is to stay with the bank, and to know the comparison was made.

None of this says switching insurer is a bad idea. It says the decision turns on a figure that is not in the policy: the spread increase. Where the discount is small, or not tied to the insurance at all, the saving is yours in full.

Changing bank does not void the policies you already hold

One last rule, which settles a common worry about mortgage transfers.

Article 24(2) provides that early repayment in full for the purpose of transferring the credit to another institution "does not affect the validity of the insurance contracts, without prejudice to the replacement of the beneficiary of the insurance contracts by the new lender, on terms that do not affect the risks covered".

The policies survive the move: the beneficiary changes, the contract does not. And paragraph 3 closes the door on clauses that might try to get around this, providing that the rule "prevails over any contractual clause to the contrary, or which in any way worsens the position of the insured or of the consumer as a result of the transfer of the credit".

This matters more than it appears when the policy is old: a policy taken out at 30 carries a tariff you will never get again at 50. Forcing you to buy afresh would amount, in practice, to a transfer cost, and that is precisely what paragraph 3 prevents.

What cannot be calculated

To close honestly on the limits.

The premium is not calculable. It depends on age, on the health declared in the medical questionnaire and on each insurer's tariff. No rule fixes it and no official table publishes it. That is why the calculator asks for it as an input.

The premium rate rises with age, and this calculation does not model that effect: the totals we produce are a floor, not a forecast. But the comparison between two offers still holds, because age loads both of them and what the page returns is the difference between them.

And there is one thing the law left to regulation: article 11(5) leaves to a ministerial order the requirements for assessing equivalence of cover, "in particular the maximum period" for the bank to decide, "the acceptable grounds" for refusal, and the possibility of an "independent third party" reviewing a refusal. If the bank refuses your policy without substantiating the lack of equivalence, that is the framework to invoke, and the Banco de Portugal is where the complaint goes.