The following 3 are the most important facts you should know about Mortgage Insurance.
Fact No 1 - Standard Rate : Most banks have an arrangement with a insurance provider for a Group Insurance Policy, charging a standard rate of premium on the mortgage amount outstanding.
This rate varies between 0.30% t0 0.60% depending on the provider.
Fact No 2 - Underwriting : Usually for Group Mortgage insurance, individual underwriting is not done for loan amounts less than 5.00 million AED.
Therefore the same percentage of premium is charged for all mortgagors of that bank, irrespective of the age, nationality and health.
Also no distinction is made if a person is a smoker or non smoker, male or female...
While this will work to the advantage of an older person or a person with health issues, this will work to the disadvantage of a young and or healthy individual.
For Eg : When a 35 years old male, non smoker, Indian expat avails a mortgage of AED 3,000,000 he may have to pay an insurance premiums of AED 12,000.
If he avails an individual mortgage insurance also known a Decreasing Term Assurance, he will have to pay a premium of AED 3,496.20 for 25 years mortgage.
In this example, the premium on Individual Mortgage Insurance is almost 70% cheaper than Group Mortgage Insurance.
Fact No 3 - Critical Illness Cover : The Group Mortgages usually cover death, and some banks include Permanent Disability Cover as well, but they do not cover critical illness.
The risk of critical illness is higher in comparison to death and disability, while the impact on the person's income is much similar.
If a mortgagor is diagnosed with Cancer it certainly leads to loss of income, because he is unable to work or pursue his business or profession.
When his income stops, it will certainly be difficult for him / her to make the mortgage payments.
If his insurance covers critical illness as well, then he will be paid a certain lump sum to pay off his mortgage or to manage the monthly mortgage instalments.
He can focus on his recovery, instead of worrying about his mortgage payments...
Decreasing Term Insurance plan from Zurich, Salama and FPI include optional critical illness cover as well at an additional premium, and they cover up-to 35 critical illnesses.
The claim is paid in the event of diagnosis of a critical illness, thus protecting the property investment of the borrower.
If not have you thought, how you will repay the mortgage in the event of diagnosis of a critical illness like cancer, Heart Attack, Stroke etc…
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