Congratulations! on your new home! Buying a new home is a major milestone for many couples as well as considered the biggest asset in your life. However, if something happens to you, have you taken the necessary step to protect it? Homeowners usually have few options to consider.
- Purchase a life insurance policy from an insurance company
- Get mortgage insurance from your mortgage lender
Should you get Mortgage Insurance or Life Insurance?
First, let’s look at some of the differences between the two.
|
|
Mortgage Insurance |
Life Insurance |
|
Beneficiary |
Mortgage Lender (Banks, Credit union) |
Designated Beneficiary (Spouse, Children) |
|
Underwriting |
Done at the time of claim. As a result, mortgage life insurance is not 100% guaranteed to payout, as the bank will decide if they will pay out when you make a claim. |
Done at the time of application. If approved, your payout is guaranteed. |
|
Premiums & Coverage |
Level premiums and a decreasing amount of coverage. Coverage ends when your home is paid off. |
Level premiums and level death benefits (as chosen by the insured). Coverage is unaffected by your mortgage ending or employment termination. |
|
Policy Option |
No options. |
Offers a wide variety of policy types and options to choose from, such as term or permanent life insurance. |
|
Renewal |
Renewal required at the end of the renewal period usually the same term of your mortgage. However premium increases in accordance with rates at that time. |
Renewal rates are guaranteed at the outset, and no further evidence of insurability is required if you keep the same policy |
|
Cost |
2-4% of the mortgage amount |
Significantly less than mortgage insurance. |
|
Flexibility |
If you move your mortgage to another bank, you’ll have to prove that your health is still good. Your policy doesn’t automatically move with you if you change mortgage providers |
Your policy stays with you even if you transfer your mortgage to another company. There’s no need to re-apply or prove your health is good enough to be insured. |
Briefly, both are excellent choices when it comes to protection however, the main difference is mortgage insurance covers only your outstanding mortgage balance and the beneficiary is the lender, i.e your beneficiary will not receive any money.
With life insurance, however, your beneficiary gets a tax-free amount of money. The beneficiary has several options on how to use that money. They may choose to pay off the mortgage, use the remaining funds to cover the cost of childcare, education, living expenses, etc.
Do you want to apply for your life insurance? Contact today.