Mortgage life insurance – yes or no?
- October 31, 2022
- Posted by: olinsadmin
- Categories: Insurance Toronto, Mortgage Insurance
Mortgage insurance and mortgage life insurance – what is the difference? Please don’t miss the key word “life”. Once again, I’d like to help you to find out which one you need to protect your home and your family.
Your home is likely your biggest asset. To protect it, homeowners usually have 2 options to choose from:
- get mortgage insurance from a bank or mortgage lender
- ensure you have you personal mortgage protection with a life insurance policy from a life insurance company
The main question is – who is protected?
And the answer will show you the dramatic difference between mortgage insurance and mortgage life insurance.
How does mortgage insurance from a bank work?
Regular mortgage insurance from a bank is financial protection for the bank where you borrow your mortgage. The bank wants to be sure that they get their money back in case if you were to become critically ill, suffer an accident or die before your mortgage is paid. The bank does not care if your family would be able or not to keep making the mortgage payments – they need their money back, here and now.
“Regular” mortgage Insurance from a bank:
- Beneficiary is the bank (or lending institution) not your family
- The bank can cancel the plan any time it considers appropriate for them
- Coverage is not portable
- If you default on your mortgage you will lose your protection
- every time you renew your mortgage, renewal rates will change modifying your mortgage
- All questions about your eligibility will be asked again
How does your personal mortgage life insurance from a life insurance company work?
The first thing to know is that mortgage life insurance can be a great way to make sure your family has mortgage protection. The money from a life insurance policy usually goes right into the hands of your beneficiaries – not the bank or mortgage lender. Your beneficiaries are whoever you choose to receive the benefit or money from your policy after you die.
Your personal mortgage life insurance:
- You are the owner of your policy, not your bank
- The beneficiary of the policy is of your choice
- Underwriting is done at the time of applying for coverage
- The coverage is portable: you could carry your mortgage insurance with different lenders
- You pay your own rate
What mortgage life insurance can offer you
Mortgage life insurance plans from insurance companies offer more flexibility, better security and significantly more value than traditional mortgage insurance. The main benefits of mortgage life insurance plans compared to traditional mortgage insurance from a bank are described below:
- The policyholder of a mortgage life insurance plan is you, not your bank. The benefit is paid directly to your beneficiary. Your family can use the benefits for other purposes besides covering the mortgage: to pay off debts, or, if they can still carry the mortgage payments, they can use it for investing and securing a future income.
- Your mortgage life insurance can pay your entire outstanding mortgage principal amount.
- You can get a much more competitive price than what your bank can offer.
- You coverage is flexible should your needs change.
- Mortgage insurance from the bank offers no discounts on premiums for healthy people.
- With the bank, mortgage insurance is typically a group policy over which you have no control, and it can be cancelled at any time.
- If two or more persons are insured with Life Insurance, a 15% discount will apply to the sum of the total Mortgage Life Insurance premiums.
- Your insurance premiums are included as part of your regular mortgage payment.
Here are some explanations with numbers
- You have a 20 year mortgage for $200,000 with traditional mortgage insurance through the bank. In case if something happen to you when the mortgage has been half paid, the mortgage insurance policy would pay to the bank the remaining $100,000.
- You have a 20 year mortgage for $200,000 as a term mortgage life insurance plan through a life insurance company. In case if something happen to you when the mortgage has been half paid, then the term life mortgage insurance policy from a life insurance company would pay the whole amount of $200,000 to your family.
Before buying your new home, do your homework – take the time to shop around for both scenarios; obtain the quotes and compare the costs.