Loan insurance

What it is and who asks for it

When you borrow, the bank asks you to join its group contract for death and disability, called assurance décès-invalidité or ADI. The bank signed this contract with an insurer for all its borrowers. You become an insured member and the bank is the beneficiary, up to the amount you still owe.

Lenders ask for it with mortgages, car loans, consumer loans and leases. For a property loan they also require fire or multi-risk cover on the building itself: see home insurance and loans.

The bank must give you the information notice of the group contract. Keep it with your loan papers: it sets out the guarantees, the exclusions and the steps to follow at claim time.

What it covers

A basic contract covers the first two lines only. An ordinary disability that stops you working but does not meet the strict definition is then not covered.

Two borrowers. Each of you is insured for a share of the loan. With 50% each, the insurer repays half if one of you dies and the survivor keeps paying the other half. With 100% on each head, the whole loan is repaid. Choose the shares according to who earns what.

Cost

The premium is a rate applied to the capital, set by age band. It is paid in one of two ways.

• A single premium, paid at the start for the whole duration, often added to the loan itself. You then pay interest on it.
• A periodic premium, yearly or monthly, calculated on the capital still owed. It falls as you repay.

Ask the bank for the total cost of the insurance in dirhams over the life of the loan, and add it to the interest when you compare two offers. The cost rises quickly with age and with the length of the loan.

Ask other insurers for a quote

Health questions and exclusions

For small loans a signed health declaration is enough. For larger amounts or older borrowers the insurer asks for a questionnaire and sometimes medical examinations. It can then accept at the normal rate, add a surcharge, exclude an illness or refuse.

Check these points in the notice:

• The exact definition of disability
• The age at which cover ends, which must not come before the end of the loan
• Excluded illnesses, sports and occupations
• Any waiting period at the start of the contract
• The documents and the time limit for declaring a death or a disability

Early repayment, refinancing and your rights

• Repaying early. When the loan ends before its term, so does the insurance. If you paid a single premium, the insurer owes you the part that corresponds to the period no longer covered. Ask for it in writing.
• Moving the loan to another bank. The same refund applies, and a new insurance starts with the new lender at your age on that day.
• Choosing the insurer. You can ask the bank to accept a contract from another insurer that gives it the same protection. The bank is not always obliged to agree, so raise it before you sign the loan offer.
• At claim time. The family or the borrower informs the bank and the insurer at once, in writing, with the death certificate or the medical file. Ask the bank to confirm in writing what happens to the instalments while the insurer examines the file.

Participative financing

Participative banks do not use conventional insurance. With a Mourabaha financing for a home or a car, they offer Takaful cover for death and disability, and a Takaful multi-risk cover for the building. The purpose is the same: the outstanding amount is paid if you die or become totally disabled. The way the fund works is different: see what you can buy today.

Questions