Insurance and banking experts have stated that insurance on mortgaged homes is mandatory both contractually and regulatory-wise. They noted that banks are the primary beneficiaries in fire insurance policies for financed properties, while the property owner comes second. They explained that in the event of a fire, if the property is financed and mortgaged to a bank, the compensation is paid directly by the insurance company to the bank, which in turn decides whether the amount is directed to repairs in case of minor losses, or used to pay off part of the debt. They emphasized that insurance on private homes and houses is voluntary as long as there is no mortgage on them, leaving it to the owner's discretion. They also stressed that insurance accompanying mortgage lending is mandatory and cannot be processed without it, continuing annually until the loan is fully repaid, with its rate ranging from 0.0025% to 0.003% per year of the financed property's value, meaning that every million dirhams of the property's value requires an insurance payment of between 250 and 300 dirhams annually. They added that intentional acts or negligence leading to a fire forfeit the right to compensation from the insurance company, regardless of the extent of the loss.
In detail, insurance expert and consultant Bassem Galimran said: 'There is no federal law that obliges all homeowners to insure their properties in general, however, insurance on mortgaged homes is mandatory contractually and regulatory-wise, as banks and financial institutions require a valid insurance policy on the mortgaged property throughout the mortgage loan period to protect their financial interests.' He added: 'This requirement is based on the mortgage loan system issued by the Central Bank of the UAE under Regulation No. 58 of 2011, and in particular, Article (2) concerning the requirements for 'risk management,' which obliges banks to adopt effective policies and procedures for risk management and protecting the collateral and maintaining its value throughout the loan term. Within this supervisory framework, the requirement to insure the mortgaged property against risks such as fire and related risks is a legitimate banking practice consistent with regulatory instructions, and is usually included as a mandatory condition in the financing and mortgage contract.' Galimran added: 'In case of a loss resulting from an insured incident, the claim is filed in the name of the policyholder (property owner), while the bank is the primary beneficiary of the compensation as stipulated in the insurance policy. The compensation is usually used to repair or rebuild the property or to reduce the outstanding loan balance.' He continued: 'As for unmortgaged homes, there is no legal obligation to insure them, and the matter is left to the owner's discretion, while confirming that insurance remains a recommended preventive practice to protect assets from potential risks.'
In response to a question about mortgage loans provided by government entities and whether they are covered by insurance, Galimran said: 'Insurance on mortgage loans provided by funds and government entities is subject to the conditions set by these entities when approving the provision of the loan. It is they who decide whether the presence of insurance is mandatory, or optional and left to the citizen's choice, as these entities are concerned with this matter.'
On the other hand, mortgage finance expert Ahmed Arfat said: 'There are two types of insurance accompanying mortgage lending: the first is life insurance, which is paid monthly along with the installment, and in case of the borrower's death, the debt is forgiven. The second type is property insurance, which is paid once a year and continues until the financing amount is fully repaid.' He added: 'Usually, banks have insurance companies that issue the insurance policy, and the policy amount is added to the financing amount and paid as a portion of the monthly installment, part of which goes to profit, part to the principal debt, and part to insurance.' He continued: 'Property insurance covers fires and 'electricity contacts,' insurance companies are not obligated to cover natural disasters, and it ranges from 0.0025% to 0.0030%, meaning that every million dirhams of the property's value requires a payment of between 250 and 300 dirhams once a year. Sometimes clients are not required to pay for insurance in the first year, as a type of offer, while other banks completely exempt the client from payment and pay it on their behalf.'
In the same context, banker Mustafa Al-Rifai said: 'Insurance accompanying mortgage lending is mandatory, and the transaction cannot be completed without it, continuing annually until the loan is fully repaid.' He added: 'In the presence of a mortgage, the property is considered a collateral for the bank, and the latter has a legal right to it until the loan is fully repaid. Therefore, the insurance policy is usually issued in the bank's interest, which is the primary beneficiary, meaning that if a fire occurs, the damage affects the collateral that the bank relies on to recover its money. If the property is severely damaged, or uninhabitable, or its market value has decreased significantly, then the collateral's value decreases. Therefore, the bank has the right to receive the compensation first, and then determine how to use it, either by repairing the property or by paying off part of the debt.' He continued: 'In most cases in the UAE, banks do not rush to pay off the loan if repair is possible, but aim to return the property to its pre-fire condition, and do not use the 'compensation' to pay off the loan, only in cases of large total losses.'
Banker Tamer Abu Bakr said: 'Mortgage insurance in the United Arab Emirates is an integral part of the process of buying a property through a bank loan. Its importance lies in being a protection for the borrower and their family, as well as for the financing bank. When obtaining a mortgage loan from one of the banks, the presence of a specific type of insurance is usually required to protect both the bank and the borrower. It aims to cover the risks associated with the inability to repay the loan.' He added: 'This is usually in the form of life insurance linked to the loan, and insurance on the property itself against a number of risks, foremost of which is fire insurance. However, compensation cannot be claimed or the insurance company cannot be approached if there is intent or negligence on the part of the mortgaged property owner.' He continued: 'Usually, the bank is the primary beneficiary of the compensation in mortgage contracts. For example, if a fire occurs and causes moderate damage, the compensation is directed to repair the damage. If the loss is substantial, then the compensation amount is deducted from the remaining loan balance.'
