If youbre applying for a mortgage in the UAE, you may have come across the term compulsory life insurance and wondered if it applies to you. In this guide, webll break down everything you need to know about mandatory life insurance when securing a mortgage in the UAE. Webll explain whether itbs required, what options you have, and how Holo can help you navigate the process smoothly.

Is life insurance mandatory for mortgages in the UAE?

Yes, life insurance is mandatory for anyone applying for a mortgage in the UAE. Banks require borrowers to have life insurance to protect their loan in case of unexpected circumstances, such as death. If something happens to the borrower, the insurance policy ensures that the outstanding mortgage balance is covered, preventing financial stress on family members.

Since the Central Bank of the UAE regulates banking and financial services, this requirement applies to all mortgage applicants, regardless of the lender you choose.

Why is life insurance required for a mortgage?

There are two main reasons why banks require mortgage applicants to have life insurance:

1. Protection for the lender

Banks need assurance that the mortgage will be repaid even if the borrower passes away. Life insurance guarantees that the outstanding amount is settled, reducing the bankbs risk.

2. Protection for your family

Life insurance ensures that your family is not burdened with mortgage payments if youbre no longer around. Without insurance, your loved ones may struggle to keep the property, potentially leading to financial hardship.

What are the compulsory lines of insurance in the UAE?

Life insurance for mortgages is just one of the several types of compulsory insurance policies in the UAE. Other mandatory types of insurance include:

• Health Insurance: Employers must provide health coverage for their employees in certain emirates like Dubai and Abu Dhabi.
• Car Insurance: All vehicles must have a valid insurance policy before they can be driven on UAE roads.
• Workmenbs Compensation Insurance: Employers must insure workers against job-related injuries or death.
• Third-Party Liability Insurance: Certain businesses are required to have liability insurance to protect customers and the public.

Life insurance for mortgages falls under these compulsory policies, ensuring financial protection for borrowers and banks alike.

Options for obtaining a compulsory life insurance

When securing life insurance for your mortgage, you generally have two choices:

1. Bank-provided life insurance

Many UAE banks offer their own life insurance policies along with the mortgage package. While this option is convenient, it may come at a higher premium.

Pros:

• Easy to set up with the mortgage approval
• No need for additional paperwork
• Directly linked to your mortgage payments

Cons:

• Higher premiums compared to external providers
• Limited flexibility in choosing coverage options

2. External life insurance policies

Borrowers can also purchase life insurance from independent providers and assign it to their bank. This option often provides better rates and coverage flexibility.

Pros:

• Potentially lower premiums
• Ability to customize coverage and add benefits
• Transferable if you change mortgage providers

Cons:

• Requires separate application and approval process
• May involve additional paperwork for bank approval

Holo can help you compare these options and choose the most cost-effective and suitable policy for your needs.

What are the three main types of life insurance?

Understanding the different types of life insurance will help you make an informed decision when selecting a policy for your mortgage. The three primary types are:

1. Decreasing term life insurance (Most common for mortgages)

• Coverage amount decreases over time, aligning with your reducing mortgage balance.
• Typically more affordable than other types of life insurance.
• Designed specifically for mortgage protection.

2. Level term life insurance

• Coverage remains the same throughout the policybs duration.
• Suitable if you want broader financial protection beyond just the mortgage.
• More expensive than decreasing term insurance.

3. Whole life insurance

• Provides lifelong coverage with a guaranteed payout.
• Can act as an investment tool, accumulating cash value.
• Typically the most expensive option and not commonly used for mortgages.

For most mortgage applicants in the UAE, decreasing term life insurance is the best option as it directly aligns with the declining mortgage amount.

Factors that affect life insurance premiums

The cost of your life insurance policy depends on several factors, including:

• Age: Younger applicants generally receive lower premiums.
• Health Condition: Pre-existing medical conditions may increase premiums.
• Smoking Status: Smokers typically pay higher rates due to increased health risks.
• Coverage Amount: Higher mortgage amounts require higher insurance coverage.
• Policy Type: Whole life insurance is more expensive than term insurance.

Holo experts can guide you through these factors to find a policy that fits your budget and needs.

Additional considerations

1. Critical Illness Cover (CIC)

Some life insurance policies offer Critical Illness Cover (CIC), which provides a lump sum payout if the policyholder is diagnosed with a severe illness. This can be useful to cover mortgage payments during medical treatment or loss of income.

2. Pre-Paid Life Insurance Policies

Some UAE banks require borrowers to pay for life insurance in advance for multiple years. While this may seem like a large upfront cost, it can sometimes lead to discounts compared to monthly payments.

3. Assigning an Existing Life Insurance Policy

If you already have life insurance, you may be able to assign it to your bank instead of purchasing a new one. This can help save money if your existing policy meets the bankbs requirements.

Conclusion

Life insurance is a mandatory requirement when applying for a mortgage in the UAE. While it may seem like one of the additional steps in the home-buying process, it serves as essential protection for both lenders and borrowers.Understanding your optionsbwhether through a bank-provided policy or an independent providerbcan help you secure the best coverage at the right price. By working with our experts, you can navigate this process efficiently and avoid any unnecessary delays