What is mortgage life insurance?

Old Mortgage protection insurance 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. Would your family be able to keep making the mortgage payments? Would they have to sell your home? To avoid all the financial troubles the bank forces you to pay Mortgage Protection Insurance.

Your Personal Mortgage 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

“Regular” Mortgage Insurance

• Underwriting is done at the time of claim
• Beneficiary is the bank or lending institution not your family
• Banks can cancel the plan, carrier can change
• Coverage is not portable
• Declining coverage’s
• Non-Smokers and Females are penalized with much higher rates
• If you default on your mortgage you will lose your protection
• Rates renew every time you renew, change / modify your mortgage
• All questions will be asked again.

“The only thing worse than a home without a mother is a mother without a home, isn’t it?” (Carlos Banhelyi)

Main benefits of mortgage life insurance plans

Mortgage life insurance plans 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.

Before you say yes to mortgage insurance with your bank, research some private institutions for better terms and lesser premiums costs.

Example

To explain how it works let’s consider the following example where a mortgage holder has either or:

1. a 20 year mortgage for $200,000 with mortgage insurance through the bank
2. a 20 year mortgage for $200,000 as a term life insurance plan with mortgage insurance coverage

If the mortgage holder dies when the mortgage was half paid at the time of death:

1. in first case, the mortgage insurance policy would pay to the bank the remaining $100,000.
2. in second case, the term life mortgage insurance policy would pay the whole amount of $200,000 for the family.

The conclusion is simple: when purchasing your new home, take the time to shop around for mortgage insurance, obtain a quote and compare the cost for both scenarios prior to making a decision. In case of mortgage life insurance, coverage for your mortgage can start on the date your mortgage is approved. This way, you are protected even before your new purchase closes.

Bottom line, a term life insurance policy gives you added coverage and flexibility over a mortgage life insurance policy. Mortgage insurance policies only cover you for the amount of your mortgage you owe to the bank. As you pay down your mortgage, your coverage amount decreases with it. This is called a reducing balance. With a term life insurance policy, you have a constant level of coverage for the whole term and are getting better value for your monthly payments.