When you take out a mortgage in the UAE, you must have life insurance. You will pay for life insurance in some form or another when you obtain a home loan in the UAE, whether you are aware of it or not.
Most banks charge it monthly, separate from the loan. Some banks raise their interest rates to cover the monthly insurance premium, while others require you to pay for the policy in advance.
In the case of married couples, if the property and mortgage are only in the name of the working partner, the non-working spouse is not required to obtain life insurance; however, most advisors recommend at least partial coverage. If the spouse is on the title, some banks require that all loan applicants be covered, regardless of who earns the most money.
LIFE INSURANCE COST
Life insurance premium payments are an ongoing cost of mortgaged home ownership that must be budgeted for. For a typical loan for nonsmokers under the age of 40, life insurance costs are minimal. However, costs can rise exponentially with age, health, and insurance coverage. Any pre-existing medical conditions must be disclosed to your life insurance advisor under the law. If you fail to disclose them, your claim could be rejected. That is, your family may not receive the insurance payout when they are most in need.
YOUR ORIGINAL COUNTRY
The cost of your life insurance can be influenced by your age, occupation, and medical history. But so can your home country. Life insurance premiums are generally lower in Western countries. Even if you have a Western passport, if you have not lived in that country for more than ten years, some insurance underwriters may consider your country of origin to be where you have lived for the majority of your life.
COVERAGE FOR ESSENTIAL ILLNESS (CIC)
Most life insurance agents also recommend Critical Illness Coverage (CIC), which will cover your mortgage payments for a set period of time if you are diagnosed with a serious illness and are unable to work. Critical Illness Cover (CIC) is not required in the UAE and can be costly if you are over the age of twenty, so most advisors recommend enough CIC insurance to cover the loan repayments for a few years, allowing you to stay in the property while you recover or giving you time to sell the property.
POLICIES FOR PRE-PAID LIFE INSURANCE
Some UAE banks will insist on you purchasing a 25-year life insurance policy and charging the cost to your loan. While this saves you money on monthly insurance premiums, it can literally add tens of thousands, if not hundreds of thousands, of dirhams to your mortgage, reducing your equity instantly. Proponents of this type of pre-paid insurance policy will argue that you are effectively fixing your insurance premiums at today’s rate, but you must consider that you will pay interest on this additional amount for the life of the loan, making it significantly more expensive.Also, if your loan does not complete its term (for example, if you sell or refinance your property with a different bank), you will only receive a partial refund of your pre-paid policy. If your loan is only for a few years, this can be VERY expensive.
IN-HOUSE INSURANCE POLICIES AT BANKS vs. EXTERNAL POLICIES
Banks typically have their own in-house life insurance policy that is underwritten by major international life insurance companies. Obtaining an external life insurance policy can be significantly less expensive in some cases, particularly if you are young and healthy. Some banks will let you get your own external insurance. Some will not. Some banks will allow you to assign an existing life insurance policy to them if the total amount insured is sufficient to pay off your mortgage in full.External policies have the added benefit of being portable, which means they can be transferred to another property or bank. If you become ill in the future, you may be unable to obtain life insurance at a reasonable cost, preventing you from obtaining a mortgage in the UAE. An external policy obtained while you are healthy today could be extremely valuable in the future.
NON-SMOKER vs. SMOKER
Insurance premiums can skyrocket depending on whether or not you smoke. If you have consumed any form of nicotine in the last 12 months, you are considered a smoker. Cigarettes, cigars, Shisha, electronic cigarettes, nicotine gum, and patches are all examples.
LEVEL TERM POLICY vs DECREASING TERM POLICY
Some life insurance policies reduce the amount insured over time as your mortgage balance decreases. These are referred to as “Decreasing Term” policies. While the payable premium remains constant, the amount insured decreases as the mortgage balance decreases. With “Level Term” policies, the sum insured remains constant throughout the policy’s term and does not decrease as the loan balance decreases.
Decreasing Term life insurance policies, in general, are specifically designed for mortgage protection and are significantly less expensive than Level Term policies. If you want to protect your family, you should consider a level term policy, which should be purchased separately from your mortgage-related life insurance policy.
