CMA Issues Credit Life Insurance Policy

The Capital Market Authority has issued the Unified credit life insurance policy. The move comes to enhance and regulate the contractual relationship between the borrower, the bank and the insurance company, as the policy aims to provide a unified framework for the terms and conditions of loan insurance contracts provided by insurance companies to borrowers from financial institutions in the event of death or Permanent disability, as the insurance company will bear the outstanding balance of the loan. The importance of the policy is in the provisions it contain that guarantee protection for the rights of the credit life insurance policyholders by specifying the basic benefits of the insurance coverage and optional benefits, which would  strengthens the social safety network for citizens and residents of the Sultanate of Oman by facilitating the process of obtaining appropriate financing on the one hand and providing protection for the borrower or his heirs on the other hand, as well as providing guarantees  to the bank or financial institution.

Decision No. 4/2024 issued by the HE the Executive President of the CMA states that the implementation of the provisions and clauses of the new credit life insurance policy commences on June 1, 2024. The decision states that the provisions of the policy do not include loan contracts that were concluded before the provisions of the policy came into effect, unless the parties agree otherwise.  The policy also states that the borrower will be compensated for the damage incurred in the event of death or permanent total disability at no less than 75%, which is the result of an accident or illness that occurred after the effective date of the policy.

With regard to determining the method of indemnity, the policy stipulates that in the event of death, the outstanding loan amount must be repaid from the date of the death as established by the official authorities. The indemnity in the case of total permanent disability will be determined after the period of full recovery estimated at 12 months from the date of the accident or the date of referral to the medical committee, whichever comes first without any improvement in the condition or according to the period specified by the competent medical committee.

Under the provisions of the unified credit life insurance policy, the basis for calculating the insurance premium in group insurance agreements between banks and insurance companies is based on a single premium, hence, the insurance period corresponds to the loan repayment period, which leads to protecting policyholders from any increase in insurance premiums after the effective date of the loan. The policy also provides an advantage to policyholders in obtaining various options at reasonable competitive prices, as the policyholder has the right to choose the appropriate insurance company without having to commit to the insurance option offered by the creditor.

The terms of the policy stipulate that the insurance company may not reject the claim on the pretext of not disclosing any medical condition that led to death, total permanent disability or a loss included in the additional benefits, provided that the death or disability occurs after four years from the beginning of the policy. Cases of intentional forgery of papers and documents issued by official authorities or medical reports are excluded.

It is worth noting that the wording of the terms of the policy was in line with the best internationally recognized professional practices. Moreover, the policy was discussed with all relevant parties before being issued to ensure the best standards of regulation and protection for insurance policyholders. The policy was also characterized by the clarity in its terms and focuses on identifying the coverage or basic benefits for the policyholder further to specifying the exclusions and cases where the policy holder’s right is forfeited.

The terms of the policy, specifically the schedule for applying for the insurance coverage, emphasizes on an important insurance principle, which is the principle of good faith, based on transparency and disclosure to determine the health condition of the borrower, which would facilitate determining the volume of the insurance risk and setting suitable standards for underwriting and the value of the insurance premium. All such data would be reflected positively in reducing disputes between the parties to the lending process, namely   the bank, the borrower and the insurance company to curb unsound practices to reduce the costs of the insurance.