Legal rules governing credit life insurance for bank borrowers in Jordanian law
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Abstract
This study examines the legal rules governing credit life insurance for bank borrowers under Jordanian law. Credit life insurance has become an essential mechanism adopted by banks to mitigate the risk of loan default, particularly in cases where the borrower dies before repaying the outstanding debt. The study aims to clarify the legal nature of the borrower’s life insurance contract, identify the parties involved in this contractual relationship, and analyze the legal effects arising from it.
Using a descriptive–analytical approach, the study analyzes the relevant provisions of the Jordanian Civil Code and the Insurance Business Regulation Law, in addition to relevant judicial decisions and legal doctrine. The research focuses on the essential elements of the insurance contract in this context, including the insured risk, the premium, and the insurable interest. It also examines the reciprocal obligations of the insurer and the insured, as well as the legal status of the lending bank and the borrower within the insurance relationship.
The study concludes that life insurance on borrowers in the context of bank lending should be legally characterized as indemnity insurance rather than personal insurance, since the insured interest relates to the financial loss suffered by the lending bank in the event of the borrower’s death. The bank typically assumes the dual capacity of insured and beneficiary, while the borrower is the person whose life is insured. The research further emphasizes the need to prevent unjust enrichment by prohibiting the accumulation of compensation for the same loss.
Finally, the study recommends that the Jordanian legislator establish a specific regulatory framework governing life insurance on bank borrowers, based on mandatory and collective risk-sharing mechanisms, under the supervision of the Central Bank of Jordan. Such regulation would help achieve a fair balance between protecting banks from credit risk and safeguarding borrowers from excessive contractual control exercised by lending institutions.
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