Let’s face it, buying a property is a headache on so many levels. It often requires years of saving, followed by practically a lifetime of paying off debt. On top of this, the actual process of acquiring a property can be long, tedious, and consists of so many steps, each with its own potential hiccups. One of the more straightforward steps of the process is the setting up of a life insurance policy. Or is it?
Unfortunately, the reality for some people is that they may find it difficult, or even impossible, to purchase a life insurance policy. The main reason for this is usually the prospective client’s medical history. To understand why, let's take a brief look at how the insurance industry works.
One must keep in mind that the company providing insurance is a business, so inherently, its aim is to make a profit, and it has a legal obligation to make good use of shareholders' money. The insurance business is all about calculating probabilities and managing risks, so that over a large client base, the company’s revenue from premiums will exceed its expenditure in the form of claims.
This concept applies to any kind of insurance. For example, why is the motor insurance premium paid by an 18-year-old higher than what a 40-year-old would have to pay on the same car? Because probability (observed from large sets of historical data) suggests the insurance company is more likely to have to pay a claim to the inexperienced, younger driver than to the older, probably more responsible, driver. In some cases, the younger driver may even be refused a policy.
The same applies to life insurance. As ruthless as it sounds, there are cases where an insurance company might even have to refuse a client based on their medical record. People who previously survived certain diseases or have certain health conditions may be deemed as too risky for a life insurance company to cover. This has usually meant that such people are unable to purchase property.
The Maltese government has just launched a new scheme, called ‘New Hope’. The aim is to address this issue, by giving the opportunity to people in this situation to become homeowners.
The state will not be offering life insurance itself. However, it will be providing the loaning bank with a secure alternative so that a loan can still be issued. The Housing Authority will be offering a guarantee to cover the mortality risk on primary home loans, up to a maximum of €250,000. To ensure the sustainability of the scheme, the National Development and Social Fund will be providing a back-to-back guarantee to cover €30,000,000 worth of loans.
Through this mechanism, the state will be helping out people who are facing difficulties through no fault of their own, without putting the burden on banks. Perhaps more importantly, the state is now carrying a burden which, more often than not, was being carried by the relatives of the prospective homeowner. This is a very welcome move as it goes in the direction of an egalitarian society aimed at opening up opportunities to unfairly disadvantaged people. More of the same, please.