First off, having any form of life insurance is a necessity to ensure that your home, your family and their future won’t be at risk in case of unfortunate life events such as sickness, accident or death.
Now, do you have an existing life insurance policy?
If yes, do you think the coverage is more than enough?
If no, do you plan to get one?
Owning a life insurance policy is a good choice to protect your family from any unforeseen incident that may occur. If you want to leave them in a situation where they can continue to thrive in your absence, you have to buy enough life insurance to cover your income, pay for future expenses, like college and retirement and even pay for the home you live in.
Life insurance policies exist to help provide money for these situations and there is one particular life insurance policy which was created specifically to repay your mortgage in the event of your death, disability or some life-altering disease.
What is Mortgage Life Insurance?
One of the most important assets you’ll own over the course of your life will probably be your family home. And for that matter, you need insurance protection to cover its value.
Therefore, this is life insurance that will pay off your mortgage if you happen to meet an early death or your health impacts your ability to earn.
Why do you need mortgage life insurance?
If you or your spouse were to pass away prematurely, one of your primary concerns would be for your family to continue living in their home and maintaining their current lifestyle without being forced to move.
If this is important to you, you will want to continue reading.
Where should you get it from?
Any lending institution that issues a mortgage is required, by law to ask borrowers if they wish to insure their mortgage. That’s why it is almost automatic for lenders to offer a mortgage life insurance to their mortgagor and that becomes an extension of their service and business as well.
Oftentimes, people will feel that they are obligated to buy the coverage from their lender, especially for new buyers and for those who feel this is most convenient for them. They aren’t aware that they have the option to turn down their lender’s offer or buy their own coverage from other providers or even, not to buy such insurance at all. Not buying an insurance is not recommendable.
What is the ‘right’ mortgage life insurance protection?
The notion of what is right is subjective of course. But measuring the efficiency of life insurance protection against your needs is good enough to determine whether you’re getting the right insurance or not.
To dwell on this topic, take a look at some of the key differences between purchasing mortgage life insurance versus owning your own personal life insurance (e.g. a term life insurance).
The 3 key points you should consider are: Control, Choice, and Flexibility.
The main difference between the two is that you don’t actually get a personal coverage from a Mortgage Life Insurance, only your home does and gets paid after your death or incapacity. To some degree, this type of insurance is not owned by you. It’s an agreement between the lending institution and an insurance company that would ensure that mortgage loan will be repaid, which leaves you with almost no control over the policy, if any at all.
If you should move your mortgage to another financial institution or even make changes to your existing mortgage, the insurance coverage isn’t transferable because you don’t own it. Again, it is for the full payment of your mortgage only. This is an important point because anytime you need to get new mortgage insurance, you must qualify for it, medically. This means that if your health changes, you may have much fewer options with your mortgage insurance or may not even be able to purchase it again.
Know that a Mortgage Life Insurance may require a qualifying insurer due to their medical condition, as this insurance can be used on cases of death, but also on condition of disability or incapacity to earn for a living and ability to pay the mortgage. And if such arises, yes, you’re mortgage is deemed fully paid, but your incapability may result to dimmer options to get by life.
When you decide to purchase your own coverage, say a Life Term Insurance Policy, your coverage isn’t tied to your mortgage in any way. So even if your health declines down the road, you can freely make decisions on changing your mortgage without worrying about your insurance coverage. And on circumstances of death, your loved ones will be able to benefit from it. Since you personally own this life insurance, you have control over the policy and coverage, including your benefactor. The proceeds then can still be able to fully pay your mortgage, plus can be used by your family to live a stable and decent life.
When you have your own insurance, you can design the contract the way you want it. In short, you have various options at your disposal.
I find that most of my clients like to have the coverage they require for today, as well as having options for the future. When you have this type of flexibility, it allows you to protect more than just your mortgage as earlier discussed.
For example, some people who are locked into lower-interest-rate mortgages find that, if a spouse dies, they may not want to use the insurance to pay off the mortgage. Instead, they invest the money and make more than they’re paying on the mortgage. You have the choice where you want to allocate the insurance proceeds whether for the present or a future time.
With coverage from the lending institution, you would not even have a choice because the mortgage insurance is paid out to the institution, not the beneficiary of your choice. When you own a life term insurance, you get to decide who gets the money from the insurance policy. This also leaves your beneficiary with the ability to decide what’s best for them and your family at that time.
The third and last point I want to talk about is flexibility. The coverage you get from a lending institution mirrors your mortgage. That means that as your mortgage decreases, so does your insurance coverage.
You might be thinking that it makes sense because your insurance is supposed to cover your mortgage. That’s correct. But the premiums for your coverage are fixed for the duration of your mortgage even when the balance of your mortgage decreases. That means, over time, you are paying for less coverage, but the premium remains the same.
On the other hand, with a life term insurance, you can pay off your mortgage and make decisions that extend beyond your mortgage, including estate planning and leaving a legacy. Both the premium and coverage are constant during the duration of the insurance unless you’ll make any adjustments during the course of payment.
This does not say that a Mortgage Life Insurance isn’t helpful or in any way lesser than a life term insurance, it actually is beneficial and advantageous. Such coverage would be able to fully pay your mortgage not just in situations of death but also when you become disabled and incapacitated. Plus, getting a mortgage life insurance is almost automatic from your lender and may not require strict medical compliance before approval.
On the other hand, Life Term Insurance gives you control, choice, and flexibility. It can be a wiser decision.
These are just options you need to learn and understand in acquiring a life insurance policy, whether it be a mortgage life insurance or a life term insurance. Choose an insurance that could work best for you presently and future-looking. Having an insurance is for your peace of mind and for the benefit of your family to live life and thrive.