When making an application for a mortgage in the UAE, it's essential to be aware that life insurance is mandatory. This means that, whether you are conscious of it or not, you will be required to pay for life insurance when obtaining a home loan in the UAE.

This life insurance policy serves as a safety net, ensuring that in the event of your untimely passing, your mortgage loan will be fully paid off. Consequently, your family can continue to enjoy the property without the burden of mortgage payments.

For most banks, the cost of life insurance is typically charged every month, separate from your loan installment. Some banks may opt to raise their interest rates to incorporate the monthly insurance premium, while others may request an upfront payment for the policy.

In cases involving married couples where only one spouse is named as the working partner and holds the property and mortgage, the non-working spouse doesn't need to secure life insurance. However, most financial advisors recommend at least partial coverage. In situations where the spouse is also listed on the property title, some banks mandate that all loan applicants be covered, irrespective of their income source.

Critical Illness Cover (CIC)

In addition to life insurance, many advisors recommend Critical Illness Cover (CIC). This coverage can be invaluable if you are diagnosed with a serious illness that prevents you from working, as it can cover your mortgage payments for a defined period. While CIC is not obligatory in the UAE, it is advisable, especially for those beyond their twenties. Advisors typically suggest obtaining enough CIC insurance to cover loan repayments for several years, providing you with the necessary time to recover or sell the property if needed.

Life Insurance Costs

The cost of life insurance is an ongoing expense associated with home ownership through a mortgage and should be carefully considered in your budget. Premiums for non-smokers under 40 years old with average loans are usually minimal. However, costs can significantly rise with age, health condition, and the insured amount. It is crucial to disclose any pre-existing medical conditions to your life insurance advisor to avoid potential claim rejections that could leave your family without the intended insurance payout.

On an AED 1 million mortgage, life insurance premiums can be as low as AED108 per month.

Factors Affecting Life Insurance Costs

Several factors can influence the cost of life insurance, including your age, occupation, medical history, and even your country of origin. Generally, individuals from Western countries enjoy lower life insurance premiums. Smokers can expect significantly higher premiums, which apply if they have used any form of nicotine in the past 12 months.

In-House vs. External Policies

Banks typically offer their in-house life insurance policies underwritten by major international companies. However, external insurance policies can sometimes be more cost-effective, especially for young and healthy individuals. While some banks permit you to secure external insurance, others do not. External policies have the added advantage of portability, allowing you to transfer them to another property or bank, which can be crucial if your health deteriorates in the future. Check with your lender whether you must take out their life insurance policy, or whether you can use an external provider.

Pre-Paid Life Insurance Policies

Certain UAE banks may require you to pre-pay for a 25-year life insurance policy, adding this cost to your loan. Although this eliminates monthly premiums, it can significantly increase your mortgage amount, resulting in higher interest payments over the loan's term. Additionally, if your loan is paid off early, you may only receive a partial refund of your pre-paid policy, making it a potentially expensive choice. Using an online mortgage calculator in UAE is useful to understand how much you could borrow. If you are considering a pre-paid life insurance policy, you will need to factor this amount into the loan amount to understand what the impact on your monthly repayments might be.

Decreasing Term vs. Level Term Policies

Life insurance policies can be categorized into "Decreasing Term" and "Level Term" policies. Decreasing Term policies align the insured amount with the decreasing mortgage balance, making them more budget-friendly for mortgage protection. In contrast, Level Term policies maintain a constant insured amount throughout the policy's duration, making them suitable for broader family protection needs. It's essential to separate your life insurance policy associated with your mortgage from any family protection policy.

When you take a mortgage in UAE, life insurance is compulsory to protect you, your family, and the bank's interests. When you work with mortgage specialists in UAE like Holo, you will be well informed on the process of obtaining life insurance and what your lender's preferences are.

Holo is like no other mortgage broker in UAE. Our digital application platform will give you access to over 500 mortgage products from banks in the UAE to find you the best deal on your home loan. Holo's services are FREE saving you AED 5,000 and your personal mortgage agent will work on your behalf to do all the heavy lifting for you, saving you time as well as money.

Ready to learn more? Head to useholo.com to start your mortgage application.

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