Shop well for the best mortgage plan

Question: I am looking at several mortgage schemes at the moment. Given the new regulations concerning mortgages, what are the mandatory or recommended insurance covers I need?

Answer: It is good you are shopping around before deciding on a mortgage plan. There are several insurance cover options available in the market, so look around for a comprehensive scheme to best suit your needs.

Payments towards a mortgage are usually the highest expenditure from your salary each month. Looking ahead is always good, unforeseen circumstances can happen at any time and you should consider insurance cover to protect you and your family from any sudden tragedies that could mean you aren't able to make regular payments.

Mortgages are secured debts, meaning that your tangible asset, in this case your house, can be repossessed if you fail to make regular payments. The house doesn't become yours till all the mortgage payments are made and it could ultimately be taken from you by your lender if you miss payments.

In most mature markets, mortgage lenders and borrowers prefer purchasing mortgage payment cover and life insurance premium before they complete a mortgage issuance. Additionally, building insurance is now mandatory for mortgage owners in Dubai, which safeguards your interests in the longer run.

As the UAE mortgage market develops, local and global insurance firms are beginning to offer several types of mortgage payment protection, life insurance schemes and building insurance schemes.

Mortgage payment protection schemes offer short-term coverage of mortgage payments when you are unexpectedly out of employment. The benefits of mortgage payment insurance also include assistance when home owners have been displaced due to sudden illness or an unfortunate accident. Savings may not be enough to assist in making mortgage payments if you are suddenly unemployed.

It is important to understand that mortgage payment protection does not cover the entire repayment of your mortgage loan. The length of the mortgage payment insurance depends on the plan you've signed up for - the usual short-term period for payment support extends from 12-24 months.

Life insurance central to any financial plan helps ensure that your monetary obligations are covered in the event of your death, so securing a policy should provide you with valuable peace of mind.

Safeguards

Determining the needs of your dependents is essential to purchasing an appropriate policy - immediate cash needs come first and include expenses like funeral costs, any repatriation costs, hospital fees and the costs of covering any debts or liabilities through an emergency fund.

With respect to buildings insurance, common sense would dictate that it is prudent to insure your largest asset, particularly if you have a mortgage against it. Buildings insurance is not expensive, typically 0.05 per cent of the market value of the property.

Buildings insurance does not simply cover damage caused by fires and explosion, but also would cover events such as water damage caused by pipe bursts or air conditioning units failing, falling trees and branches, vandalism and theft or attempted theft.

You can find different mortgage payment insurance packages and building insurance covers from your mortgage company or through insurance institutions that offer these insurance covers. Packages can differ based on the duration of the assistance period, terms of applicability and the cover of other mortgage related payments such as premiums for endowment policies and household insurance.

If this is the first time you are looking for mortgage payment protection and life insurance premium, it is always advisable to visit an independent financial adviser.

- The writer is director of general insurance at Nexus, one of the region's leading financial advisers.

Views expressed are the author's own and not necessarily reflect those of Gulf News. If you have questions, please email: advice@gulfnews.com