Standard Credit Life Insurance Policy that specifies the basic benefits, conditions and exclusions

Al Salmi: The Insurance Policy aims at ensuring the protection of borrowers’ rights and provide them with social and economic protection

Aiming at regulating the contractual relationship among the borrower, bank and the insurance company, the Capital Market Authority issued  Decision no (4/2023) on the Standard Credit Life Insurance Policy; which aims at providing a standard insurance coverage for borrowers’ 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, Sheikh Abdullah bin Salim Al Salmi, assured that issuing the policy is considered as an advanced step in regulating the processes of bank financing and reflects a level of professional regulation of the Omani Capital Market and all its components (insurance and banking sectors) in addition to the continuous cooperation and coordination between the regulatory and supervisory entities, particularly between the CMA and Central Bank of Oman in which enhances the confidence of the customers.  Additionally, he explained that 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.  This is since the policy provides a legal framework which includes a financial center 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% 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 policy clauses, particularly 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.   His Excellency also emphasized 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 included 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 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 provided 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 included 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.

 It is worth mentioning that issuing this policy translates the strategic plan that the CMA seeks to apply during the period, 2021-2025 through enhancing the organizational level of the insurance products and providing legal framework that protects the parties of the insurance process, contributing to building confidence among the contractual parties.