New Standard Credit Life Insurance Policy to safeguard against loan liability
Enhancing regulation: The new policy aims at ensuring the protection of borrowers’ rights and provide them with social and economic protection: CMA Executive President
Aiming at regulating the contractual relationship among the borrower, bank and the insurance company, the Capital Market Authority (CMA) has issued Decision 4/2023 on the Standard Credit Life Insurance Policy.
The Decision prescribes standardised insurance coverage for a borrower’s life in case of death or permanent disability by obligating the insurance company to pay the outstanding balance of the loan. The new policy includes the basic and optional benefits for the insurance coverage in addition to the cases of exclusions.
The policy clearly clarifies the rights and obligations of the stakeholders (the borrower, the insurance company and the finance entity) which contributes in reducing disputes which could occur among the parties in case the risks becomes reality.
On the importance of the policy, the Executive President of the CMA, Shaikh Abdullah bin Salim al Salmi said the policy aims at ensuring the protection of policyholders of the Standard Credit Life Insurance Policy to support accomplishing the developmental objectives which have social dimensions represented by enhancing social security through simplifying the process for receiving the suitable finance on one hand and providing protection for the borrowers and their inheritors on the other hand.
The policy provides a legal framework which includes a financial centre for all the parties in case the risk comes to reality for the borrower whether by death, permanent total disability or even permanent partial disability exceeding 75 per cent as a result of an accident or sickness.
Al Salmi also added that regulating such insurance products, by the Standard Credit Life Insurance Policy, accomplishes an economic dimension which is enhancing the role of insurance in reducing credit risks which means providing financial facilities to the public, reflecting positively on the activity of real estate or personal finance.
He also said that the policy clearly clarified the rights and mainly focused on the coverage limits, the basic benefits for the policyholders and the exclusions and the cases where right forfeits.
The schedule of the coverage application enhances an important insurance principle, good faith; which stands on transparency and disclosure to specify the health status of the borrower.
This simplifies the specification of the volume of the insurance risk and setting adequate criteria for underwriting and pricing the coverage.
Al Salmi also emphasised that all these inputs will positively reflect on reducing disputes among the parties of the loan relationship including the borrower, the insurance company and the finance entity in addition to reducing other negative practices. This will eventually be reflected positively on reducing insurance costs.
The policy includes some conditions and provisions to protect the rights of all the parties such as compliance of parties to good faith when disclosing material facts related to the health status with total honesty and based on the illness specified in the insurance policy.
The decision prescribes standardised insurance coverage for a borrower’s life in case of death or permanent disability by obligating the insurance company to pay the outstanding balance of the loan.
SHAIKH ABDULLAH BIN SALIM AL SALMI Executive President, CMA
The policy also gave the insurance company maximum two years for rejection of claims in case false material information or data is provided, and the company shall not reject a claim for breaching the principle of disclosure afterwards.
The policy also provides legal remedies by calculating the insurance premium which was calculated as One Single Premium; that should be determined at the commencement of the contract, maintaining the premium cost without being affected by any future volatility resulting from changing the pricing policy of the insurance company or the bank’s desire to sign a contract with another insurance company; which allows the coverage period to be the repayment of the loan, not the period of the agreement between the bank and the insurance company.
The policy also includes five exclusions where the right for the insurance coverage falls for this type of the insurance products and took into consideration the long length of such policies and the variables that could occur during this period and set exclusions of the insurance coverage in case a previously diagnosed illness was not disclosed before purchasing the policy which have led to disability or death within two years only from the commencement of the policy in addition to intended death or injury during one year only from the date of loan.