Property customers in the UAE who pick to take out a mortgage are frequently faced with an essential selection: Should they consider life insurance? While buying property may be a first-rate monetary milestone, it additionally comes with duties, in particular when it consists of borrowing cash from a bank. Term life insurance can provide extra protection, ensuring that the mortgage is paid off in case of an unfortunate event like the borrower’s passing.
This article provides you with essential information on why property buyers with a mortgage should seriously consider taking term insurance and how it can provide peace of mind for both the borrower and their family.
Term Life Insurance For UAE Property Buyers With Mortgages
What Is Term Life Insurance?
Term life insurance is a policy that offers coverage for a set period, usually between 10 and 30 years. Unlike whole life insurance, which can accumulate a cash value, term life insurance provides a death benefit if the policyholder passes away within the term. This type of insurance is often used to protect significant financial obligations, such as a mortgage. For property buyers, term life insurance can cover the outstanding mortgage balance, ensuring that their family is not left with the financial burden of repaying the loan if something were to happen to them.
Why Is Term Life Insurance Important For Property Buyers?
When buying property through a mortgage, the lender has a vested interest in ensuring the loan is repaid, regardless of the borrower’s circumstances. This is why lenders often require borrowers to take out life insurance when they apply for a mortgage. If the borrower passes away before the mortgage is fully repaid, the insurance payout can cover the remaining balance. This reduces the risk of financial loss for the lender and prevents the borrower’s family from losing their home.
How Term Life Insurance Works With Mortgages?
When taking out a mortgage, the borrower may be required by the lender to have life insurance. This ensures that the mortgage balance is covered in the event of the borrower’s death. The life insurance policy is usually tied to the mortgage, and the payout goes directly to the lender to clear the outstanding loan balance.
In some cases, borrowers can opt for a specific type of insurance known as mortgage protection insurance, which is designed specifically to cover the mortgage. However, many borrowers choose to take out a regular term life insurance policy, which can also be used to satisfy the lender’s requirement.
The Growing Demand For Term Life Insurance In The UAE
As property sales and mortgage applications continue to rise in the UAE, so does the demand for term life insurance. The UAE property market has been booming, with a significant increase in property transactions. In November 2023, Dubai alone recorded over 12,500 transactions, a rise of 18 percent compared to the previous year. This surge in property purchases has led to an increase in the number of buyers opting for mortgages, which in turn has fueled the demand for life insurance policies.
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Who Needs Term Life Insurance?
Both expatriates and Emiratis who are purchasing property with a mortgage should consider term life insurance. This type of insurance is particularly important for individuals who have dependents or family members relying on their income. With a mortgage, the financial responsibility does not end with the borrower’s death. Without life insurance, the family may struggle to repay the loan, potentially risking the home.
How Much Does Term Life Insurance Cost?
The cost of term life insurance depends on several factors, including the borrower’s age, health, and the amount of coverage needed. For a healthy non-smoker in their 30s or 40s, the annual premium for a term life insurance policy covering a mortgage of around Dh1 million can range from Dh1,200 to Dh2,000. The cost may be higher for older individuals or those with pre-existing health conditions.
The premium is typically lower for younger individuals, as they are considered less risky by insurance companies. As the borrower ages or develops health issues, the premium may increase. It is important to shop around and compare different policies to find the best coverage at the most affordable price.
Is Term Life Insurance Required By The UAE Government?
While life insurance is not a government requirement in the UAE, many banks and financial institutions require borrowers to have life insurance as part of the mortgage process. This is particularly true for larger mortgages or higher-value properties. In some cases, the life insurance policy may be tied to the mortgage, ensuring that the outstanding loan balance is paid off in the event of the borrower’s death.
As the property market in the UAE continues to grow, more and more buyers are opting for term life insurance to protect themselves and their families. This trend is expected to continue as more people take out mortgages to purchase property in the UAE.
Arshad Darbar’s Thoughts
Arshad Darbar, a seasoned real estate expert, emphasizes the growing importance of term life insurance for property buyers in the UAE, particularly those with a mortgage. He believes that as the UAE’s property market continues to thrive, with increasing demand for off-plan properties, ensuring financial security through life insurance is a wise decision for both lenders and borrowers.
According to Darbar, while many borrowers may view life insurance as an additional cost, it provides invaluable peace of mind, knowing that their family will be protected from the financial burden of an outstanding mortgage in the event of their untimely death. Darbar highlights that term life insurance is not only a safety net for the borrower’s family but also an essential requirement by many lenders. For high-value mortgages, it adds an extra layer of protection, reducing the lender’s risk while ensuring that the borrower’s loved ones are not left vulnerable.
He also notes the growing trend among expatriates in the UAE, who are increasingly recognizing the significance of securing their family’s future through term life insurance when purchasing property with a mortgage. Overall, Darbar advocates for term life insurance as a key element in safeguarding both personal and financial well-being in the real estate market.
Conclusion
For property buyers in the UAE, term life insurance is an essential tool for ensuring that the mortgage is paid off in the event of the borrower’s death. It provides an added layer of protection for both the borrower and the lender, ensuring that the family is not burdened with the financial responsibility of repaying the mortgage. As demand for property continues to rise, so does the need for term life insurance, making it an important consideration for anyone purchasing a property with a mortgage.
By understanding the benefits of term life insurance and how it works, property buyers can make an informed decision that provides financial security for themselves and their loved ones.
