key differences between life insurance and mortgage insurance

How do we protect our homes? If you and I are no longer around to make the mortgage payments. The home we worked so hard to purchase, the investment most of us leave behind for our children or family in general. Two common choices come to mind, life insurance which is typically a Term policy, or mortgage insurance.

But there are some key differences between Life Insurance and mortgage insurance.

  • Beneficiary

    With mortgage insurance, the financial institution (mortgage lender) is the sole beneficiary. They collect the funds and the property will become paid off. Therefore, the freedom of choice is no longer yours. However, with a life insurance policy, your beneficiary will decide how to funds are used. They can keep paying the monthly premiums, and think about downsizing or moving if required. They can have additional savings while paying the mortgage, so the funds are not spent all on the mortgage.

    Portability

    Mortgage insurance has to be canceled if you sell the property, or change mortgage ( in most cases) even if you pay off your mortgage. However, life insurance stays the same until it’s cancelled by you, or it’s time to renew it. Keep in mind, that setting up a new mortgage insurance may now cost more because of your age, amount of mortgage, etc. However, the initial life insurance you’ve purchased will have the same monthly premium for the period you insured yourself e.g. 10 years, 20 years, 30  years. Etc.

    Coverage

    The mortgage insurance only covers the outstanding balance of your mortgage. However,
    life insurance can be used for multiple purposes. It can be used to pay other loans, to replace the income of individuals who passed, pay monthly mortgage premiums, funeral costs, and more.

    Medical Examinations

    Mortgage insurance generally doesn’t require any medical examinations, they offer the policy after the Insurance asking a few quick questions. This process can complicate things as claims could be denied later on once they investigate the cause of death, based on having existing conditions, health issues, etc. On the other hand, life insurance completes the underwriting for medical questions first, if there is a need
    for a medical examination, has to be completed and approved before issuing the life insurance policy.

    Expert Advice

    Mortgage insurance policies are often issued without a financial analysis and very quickly. But Life Insurance applications are completed by a licensed insurance advisor, they’ll offer a lot more information in regards to the policy itself and will tailor the policy according to your needs. There is also a lot more ongoing service and support that goes along with life insurance policies.

    Longevity and Flexibility

    Term Life insurance can often be converted to longer-term or permanent life insurance policies. However, mortgage insurance does not offer much flexibility.

    Benefit Amount

    For most mortgage insurance policies, the benefit amount decreases as you pay down your mortgage, but then your monthly premiums remain the same. This is unfair, as the amount paid to the financial organization after the death of the insured decreases every year. Term Life Insurance on the other hand offers the same amount of coverage for term policy.

    Premium

    Mortgage insurance typically involves a fixed monthly payment that is determined by the amount of coverage and the duration of the mortgage. However, term life insurance offers a more flexible and potentially cost-effective alternative. With Term Life Insurance, you can initially choose a coverage amount that suits your current needs for a shorter period, such as 10 years ( Term10). If your circumstances change, you have the option to extend the coverage to a longer term, such as 20 or 30 years, providing you with greater adaptability and control over your insurance payments.


Always get a quote for both and see which would suit your needs for short and long-term goals.

 

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