Mortgage protection insurance in the UAE is mandatory. It’s designed to protect you and your lender in the case of an unexpected death or permanent disability before paying off the loan in full. In this article, we’ll dive into what exactly it is, why you need it, and some of the key things you’ll need to consider.
How does mortgage protection insurance work?
Mortgage protection insurance is a life insurance policy. It will repay your home loan in full in case of your untimely death or permanent disability so your partner or family doesn’t need to worry about mortgage payments. While most lenders have one specific life insurance policy without a choice of terms, other lenders allow you to purchase your own life insurance and assign the bank as the beneficiary (usually for a fee).
With mortgage protection insurance, the death benefit would equal the amount of the original mortgage loan. As the homeowner pays off their mortgage, the benefit would continue to match the outstanding balance. Once the loan has been repaid, the coverage ends.
Typically, banks charge your insurance separately from your loan on a monthly basis. However, some banks increase the interest rates on the mortgage loan to cover the monthly insurance premium instead. Other banks may require you to pay the policy in advance.
1. How much does mortgage protection insurance cost?
This depends on various factors. Usually, the younger and healthier you are, the less you’ll pay. For an AED 1M mortgage, you could pay as little as AED 108 per month. However, costs can increase with your age and health. Also, pre-existing medical conditions must be legally disclosed and will be factored into your coverage.
One factor that can significantly increase your insurance premiums is if you are a smoker. You are considered a smoker if you have had any form of nicotine in the last 12 months, including cigarettes, cigars, Shisha, electronic cigarettes, nicotine patches, or gum.
Your country of origin can also affect the cost of your life insurance. Generally, people from western countries get lower life insurance premiums.
2. Decreasing-term vs level-term policy
A decreasing term insurance policy is where the benefit reduces over time as the outstanding mortgage balance decreases while the payable amount stays the same.
A level-term policy is where the insured amount stays fixed for the duration of the policy and does not decrease in line with the mortgage balance over time.
While decreasing-term policies are cheaper, life-term policies may be better if you have a family who may benefit from a fixed (instead of decreasing) benefit in case of an untimely death.
3. Do I need critical illness cover?
Critical illness cover (CIC) covers mortgage payments if you are diagnosed with a serious illness and cannot work or pay your mortgage. It’s generally advised by insurance advisors, although not mandatory in the UAE. It can be quite expensive, so it’s worth speaking to your insurance advisor about this and what some of the best options may be for you e.g. getting enough CIC insurance to cover loan repayments for a few years.
Need help deciding? We can help
Need advice about which banks have the most flexible insurance policies that will be suitable to your circumstances? Then don’t hesitate to get in touch with our friendly in-house team of mortgage experts.