Insurance does not cover fires in “mortgaged” villas if they are divided into residential units

Two experts confirmed that insurance companies do not cover fire damage when it occurs in villas mortgaged to banks, as long as it is divided into more than one resident, and without the knowledge of the insurance company, whether affiliated with the bank or an independent company.

We explained to “Emirates Today” that the insurance policy is usually issued for the villa as a single-family residence, and if it is divided without notifying the insurance company, this is considered a fundamental change in the degree of risk, which leads to the compensation claim being rejected or reduced.

This came in response to inquiries received by “Emirates Today”, after publishing an investigation about the necessity of insurance for villas financed by banks, leaving the matter optional in the case of private homes owned by their owners.

In detail, insurance expert Bassam Galmiran said: “In general, property insurance may cover a villa fire, even if it is divided and rented into rooms and studios, but that is conditional on the insurance company being aware of the nature of use when issuing the policy, or that the policy was originally issued on the basis that it is a rental (investment) property.” But if the policy was issued on the basis that it was a single-family residential villa, and then it was divided and rented without notifying the insurance company, then the insurance company may consider that there is a fundamental change in the degree of risk, and this may lead to rejecting the claim or reducing compensation, especially if there are violations that affect safety, such as irregular electrical installations, unsafe overloading, or non-compliance with civil defense requirements.

Galmiran added: “With regard to the fact that the property is mortgaged to the bank, the mortgage does not prevent compensation, but often the bank is mentioned in the document as the first beneficiary, so the compensation is settled in the interest of the bank or with its approval. The bottom line is that payment or rejection depends on three main points: What is the declared use in the document? Has the insurance company been notified of the division and leasing? Are there safety violations related to the cause of the fire?

For his part, real estate finance expert, Ahmed Arafat, said: “The custom of dividing villas is illegal, since it is common knowledge that a villa is inhabited by one family, and has one water and electricity meter, and some people resort to dividing villas to be inhabited by several families without documented contracts, and thus the state’s right from the municipality’s expenses, estimated at 5% on average, is not deposited. Also, some merchants resort to taking places in the divided villas and using them as food stores, which raises the degree of The risk is not agreed upon in the insurance policy.” Arafat added: “If the villa is mortgaged, that is, financed by the bank, the latter will be the first beneficiary in the insurance policy, and any compensation that is disbursed will be in control of the manner in which it is disbursed. Meaning, if the division takes place without the knowledge of the bank and the insurance company, and the risk occurs, the compensation will be the pure right of the bank, which can be used to pay part of the remaining balance of the debt.”

He continued: “It is important for the owner of the mortgaged villa to realize that any fundamental change in its use would cause him to lose any insurance coverage if the risk he is insured against occurs, in addition to the necessity of adhering to all safety standards.”