Mortgage Insurance versus Life. Is there a Difference?
Owning a house is a dream for all of us. However a home is a costly affair these days and thus requires a lot of borrowed money.
If you are a borrower it is recommended that you purchase some protection. However, it is important that you know that mortgage insurance isn’t your only, and may not even be your best option. Term life insurance is another great option available to you.
So what is the difference between mortgage protection and life insurance?
For starters, Mortgage Insurance coverage decreases as you pay down your mortgage, yet the amount you pay every month remains the same or increase upon mortgage renewal due to the insured being older.
Another issue with mortgage insurance from the bank is that they have post claim underwriting, meaning that the underwriting will be done after a claim has been submitted. So you could be declared uninsurable after you have submitted a claim and your claim denied.
You cannot convert mortgage insurance into permanent insurance so when your mortgage is paid off the insurance expires.
Another major difference is that Mortgage Insurance is great for the lender because they are listed as the beneficiary of your policy so if anything happens to you the money goes right to the institution to pay off your debt.
It is important to pay off your debts in the event of an unexpected death but most people do not know they have other options. Term Life or whole life insurance may be a better option to cover your mortgage or other debts.
As the owner of a Term or Whole Life insurance policy you get to name your beneficiary and they can use the benefit as they see fit. The benefit amount remains the same or higher if the policy is a whole life. The premiums are usually less costly than mortgage insurance and are guaranteed to remain the same for the life of the policy.
Term life insurance is not directly tied to your mortgage so your insurance does not cancel when you renew or switch lenders, you move to another province or country, or you are finished paying off your mortgage.
An important aspect of term life insurance is that with most policies you are guaranteed to renew your insurance regardless of your health. So if you get sick and would otherwise be uninsurable term insurance guarantees that your policy be renewed regardless of your health.
If you purchase it directly from your insurance agent, all underwriting will be done before the policy is issued. Therefore you know your claim will be paid out when needed according to the terms of your contract, unless fraud can be proven.
Insurance is a complicated topic. I strongly recommend that you do your homework before buying any insurance so that you will be aware of your options.