Mortgage insurance in Portugal: less cover so the loan fits the new limit
Since 1 August, banks in Portugal are asked to keep loan payments within 45% of a household's net income. To keep more families under that line, some banks are asking for less cover on the life insurance attached to the mortgage. The monthly cost goes down — and so does the protection.
In this article
Anyone applying for a mortgage in Portugal right now may notice that the life insurance quoted by the bank is cheaper than expected. The reason is not the insurance market. It is a lending rule that changed on 1 August 2026.
Two insurance policies come with almost every Portuguese mortgage
This often surprises foreign buyers. In Portugal a mortgage is rarely just the loan. Banks normally require two policies, and their cost is part of what the household pays every month.
- Buildings insurance (seguro multirriscos) — it covers the property: fire, storms, floods, electrical damage, earthquakes and public liability. Some policies also cover the contents. The bank requires it because the property is the security for the loan.
- Life insurance (seguro de vida) — it covers the people who signed the loan. If the worst happens, the insurer pays the outstanding balance to the bank, so the debt does not stay with the family.
What changed on 1 August
Banco de Portugal reviewed its macroprudential recommendation, the set of rules banks follow when they study a loan application. The main change is the limit on how much of the monthly net income can go to loan payments. It fell from 50% to 45%.
A simple example.
A couple with a net income of 3,000 euros a month can now commit up to 1,350 euros a month to loan payments. Under the old 50% limit, the figure was 1,500 euros. Same income, smaller loan.
The same recommendation sets the maximum loan term at 40 years for borrowers aged 35 or under, and 35 years above that age. Banks may still go over the 45% line, but only for 10% of the new credit they grant in each half-year.
Where the insurance fits into this
The Banco de Portugal ratio counts only the loan instalments. But when a bank assesses the file on its own terms, the insurance premium is part of the monthly cost it weighs up. A cheaper policy therefore leaves more room under the 45% line. According to Tiago Vilaça, president of ANICA, the Portuguese association of authorised credit intermediaries, this is exactly where some banks are now acting.
“Banks are following the law, but they are lowering what families pay so that they can fit them in. If I can bring the costs down, I can fit the loan inside the 45% limit.”
The three covers on a Portuguese life policy
Banks traditionally ask for three covers. They are not the same thing, and the differences between them matter.
| Cover | When it applies | What happens |
|---|---|---|
| Death | One of the people who signed the loan dies | The insurer pays the outstanding balance to the bank |
| Absolute and permanent disability (IAD) | A very severe condition: the person needs another person for basic daily tasks, such as eating or dressing, and can no longer do any paid work | The insurer pays the outstanding balance. This is the strictest cover and the hardest one to claim on |
| Permanent disability for own or compatible occupation (IDPAC, formerly ITP) | The person can no longer do their own job, or another job that matches their training and experience | Usually claimable from a disability level of 60% or 65%, depending on the policy |
The exact wording differs between insurers and is always set out in the general and particular conditions of the policy.
60% or 65% sounds like a small difference. It is not.
It decides whether the insurer pays or does not pay after a serious illness or accident. Two policies with a similar price can have very different claim rules.
What some banks are doing
According to the head of ANICA, some banks are dropping the disability covers and keeping only the death cover. Others, when two people sign the loan, ask for only 50% of the cover for each of them.
What 50% cover for each person means
On a 200,000 euro loan signed by two people, each one is insured for 100,000 euros. If one of them dies, the insurer pays half of the debt to the bank. The other half is still paid by the person who remains.
None of this breaks the rules, and the head of ANICA makes that point himself: the banks are following the law. The question is not legality. It is whether the family understands, before signing, what protection it is buying and what protection it is giving up.
Why this matters
A lower payment today can mean less protection tomorrow. If one of the borrowers has a serious accident or illness and the policy has no disability cover, the whole debt remains. The payment still has to be made, often at the exact moment when the household income has dropped.
Fifteen or twenty euros a month on the insurance looks small next to the loan payment. But that is the difference between the insurer clearing the loan and the family carrying it alone.
What to check before signing
- Which covers the policy includes. Death only, or disability as well? And if disability is included, which one: IAD, IDPAC, or both?
- The disability level that triggers a claim. It is usually 60% or 65%. It is worth asking, and worth having the answer in writing.
- The percentage insured for each person. 50% or 100% of the loan? For a couple, this is the choice that decides what happens to the one who stays.
- What the difference costs. Asking the bank for a quote with and without the disability covers puts price and protection side by side, with real numbers.
- Whether the policy really has to be the bank's. Both policies can be taken out with another insurer. Banks usually raise the spread when that happens, so the full calculation has to be done before deciding.
There is no single right answer. The right choice depends on the household, the income, the age of the people signing and what the family could carry if one of the incomes stopped.
FINOVA compares offers from several banks and reviews each case individually. FINOVA's fee is paid by the bank, after completion. The mortgage process itself always has costs of its own: taxes, the property valuation and registration fees.
Sources
Statements by Tiago Vilaça, president of ANICA, to Jornal PT50 (10 August 2026, in Portuguese).
Affordability limits, maximum loan terms and portfolio exceptions: Banco de Portugal — revised macroprudential recommendation, applying to creditworthiness assessments carried out from 1 August 2026.
