Part of our complete guide to home insurance in Portugal for property owners. For a free comparison across Zurich, Allianz, Hiscox and Liberty Mutual, request a quote in 24 hours.
If you bought a property in Portugal with a mortgage, the odds are that the bank arranged your home insurance at the same time, in the same appointment, in Portuguese, at the end of a very long morning. That policy is almost certainly costing you more than it should and covering you for less than you think. Both problems are fixable, and the law is on your side.
What the bank can and cannot require
A mortgage lender in Portugal can require you to hold buildings insurance covering at least fire, for at least the value of the property as security, with the bank named as beneficiary of the mortgage interest. That is the legitimate requirement, and it is entirely reasonable — the bank has lent against a building and wants the building insured.
What the bank cannot do:
- Require that the policy be bought from the bank or its own insurer. You are free to insure with any authorised insurer.
- Refuse a policy that meets the contractual requirements simply because it came from elsewhere.
- Charge you a fee for accepting an external policy.
- Withdraw an interest-rate discount without that condition having been set out in the loan contract.
That last point is the one that stops most people, and it deserves a straight answer. Many Portuguese mortgages carry a bonificação — a spread reduction — conditional on holding certain products with the bank, insurance among them. If your contract contains that clause, moving the policy can genuinely cost you a rate increase. The arithmetic still often favours moving, but you have to do it rather than assume. Check the loan contract for the clause and the exact size of the spread adjustment before you cancel anything.
Why the bank policy is usually poor value
It is not that bank-sold policies are bad products. It is that they are sold at the moment of least resistance, to a customer who is not comparing, by a member of staff whose job is not insurance. Three things follow predictably.
The sum insured is set from the loan, not the building. Banks frequently insure at the purchase price or at the loan amount. Neither is the reconstruction cost. Insure a €400,000 purchase in Lagos where the land is a third of the value and you are over-insured on the building — paying for cover you can never claim. Insure at the €250,000 loan amount on a property costing €340,000 to rebuild and the proportional rule cuts every claim by more than a quarter.
The cover is thin. Fire and the compulsory minimum, sometimes with water damage at a low sub-limit, often with no contents worth the name, frequently with liability at €25,000 or €50,000, and rarely with accidental damage, garden and outdoor property, or a raised leak-detection limit. You are insured against the least likely event and exposed on the most likely one.
The premium carries a distribution cost. A policy sold across a bank counter has to pay for the counter. On a typical Algarve property we see bank policies priced 30% to 60% above what the same or better cover costs placed directly with the same insurer through a broker.
Send us the bank policy and we will tell you what it is worth
A written comparison in English within 24 hours — and if the bank policy wins, we will say so.
How to switch, step by step
- Find the loan contract clause. Look for the section on produtos associados or bonificações de spread. Note whether home insurance is listed and what the spread penalty is. This is the only number that can change the answer.
- Get the current policy’s condições particulares. One or two pages, showing the sums insured, the covers, the sub-limits, the excesses and the renewal date. The bank must provide it; so must the insurer.
- Have the replacement quoted properly. Not a like-for-like copy of a policy that was wrong to begin with — a rebuild figure calculated from the built area and finish, with the covers the property actually needs.
- Check the new policy meets the loan conditions. Fire cover at least at the required value, the bank named with its mortgage interest, and the term aligned. This is routine and we handle it.
- Cancel the old policy in writing, respecting the notice period. Portuguese policies are annual and renew automatically; cancellation at renewal normally requires 30 days’ written notice. Mid-term cancellation is possible in defined circumstances but the renewal date is the clean route.
- Send the bank the new certificate. Usually the apólice plus a declaration naming the bank. Keep proof of delivery; the most common friction in the whole process is a bank branch claiming it never received the document.
Timed to the renewal date, the entire switch is administrative and there is not a single day without cover. We do this frequently enough that the paperwork is routine.
A worked example
A three-bedroom townhouse near Lagoa, bought for €385,000 with a €270,000 mortgage. The bank policy insured the building at €270,000 — the loan amount — with €10,000 of contents, €50,000 of liability, a €2,000 leak-detection sub-limit and no accidental damage. Premium: €612 a year.
The reconstruction cost, calculated properly from 180m² of built area at Algarve construction rates, was around €320,000. So the building was underinsured by roughly 16% — enough for the proportional rule to bite on every claim. We rebuilt the policy at €320,000 with €45,000 of contents, €300,000 of liability, a €5,000 leak-detection sub-limit and accidental damage added. Premium with a mainstream insurer: €438. The loan contract had no insurance-linked spread condition. Better cover, €174 a year less, and the underinsurance gap closed.
That is a typical outcome rather than a best case. Where a spread condition does exist, the calculation is different and sometimes the answer is to stay — but to fix the sums insured with the bank’s insurer instead, which they will do on request.
The same applies to your mortgage life cover
The life insurance the bank attached to the loan is subject to the same freedom of choice and shows the same pattern — sold at the counter, priced accordingly, and frequently on terms that decline over the loan while the premium does not. It is usually the larger saving of the two. We cover it in detail in mortgage life insurance for foreign buyers, and if you are reviewing one it is worth reviewing both in the same conversation.
What we do
Send us the condições particulares of the bank policy and, if you have it, the page of the loan contract dealing with associated products. Within 24 hours you get a written answer in English: what the policy actually covers, where the sums insured are wrong, what the alternatives cost, and whether the spread condition changes the maths. If the bank policy is the right one to keep, we will tell you and explain what to fix in it.
Adler & Rochefort is a commercial brand of Ownizo Unipessoal Lda, registered with the ASF under no. 425591790/3. General guidance only; conditions, premiums and cover vary by insurer and profile.