MORTGAGE INSURANCE

by Peter on May 16, 2016

WHAT IS IT AND WHAT ARE YOUR OPTIONS?

When you buy your first home you will probably hear a lot about mortgage insurance. The topic can be a little confusing. What is mortgage insurance, and do you need it if you already have life insurance? Should you purchase both, or just one? The concept of mortgage insurance is really relatively simple, and the answer to whether or not you need it depends on your current situation.

What is Mortgage Insurance?

Mortgage insurance is simply a term life policy that is designed to cover your mortgage if you die during the term. For example, if you have a 30-year mortgage you can purchase a 30-year term mortgage insurance policy that covers the amount owed on your mortgage, ensuring that family left behind will be able to pay off your home and continue to live there. This is helpful if you are the main breadwinner and your family would be unable to make the mortgage payments without you.

Some mortgage insurance policies are designed to have a decreasing death benefit over time. This means that the benefit decreases in accordance with your mortgage loan, so that it stays on par with what needs to be paid off as time goes by. The premium doesn’t change, because it has been averaged out over the life of the policy. These policies are generally on the cheaper side, but are less popular for the obvious reason that you get less money over time plus with some policies, you cannot use the money as you feel. You must pay off the mortgage which might not be the best solution as the time. A level term insurance policy is generally not much more expensive and keeps the same death benefit over time.

Term Life Insurance?

There is really no difference between a term life insurance policy and a mortgage insurance policy. Mortgage insurance is a term life policy, simply one that is chosen to coincide with your mortgage. This means that you don’t have to buy something that is called mortgage insurance to cover your mortgage. You can simply carry a term life insurance policy with the value you need for the death benefit.

The bonus to this is that you can combine all of the coverage you need under one policy. There’s really no need to have two policies, one for the mortgage and one for your regular life insurance needs. The two can both be covered under a standard term life insurance policy.

If you already have insurance?

If you have already purchased a life insurance policy when you buy your first home, it’s important to take a look at how much coverage you have and how much the home purchase increases your coverage needs.

If the policy already in place is a whole or universal policy, it’s best to leave that one in force and look at added a term policy to protect the mortgage. You can carry these two policies at the same time, and the term policy will expire, leaving you with the whole life policy still in force for the duration of your life.

Adding a term life or mortgage insurance policy as an extra level of coverage ensures that your family has the extra money to pay off the mortgage and will still receive the death benefit from the other policy to assist with other needs. Later, when the house is paid off and you no longer need a policy to protect it, you can let the term policy expire and retain the other coverage as a death benefit for your family.

How much life insurance do you need?

This is a question that many people find difficult. Can you have too much life insurance? Many would say no, but you can definitely have too little. Erring on the side of carrying more than is needed is certainly a better choice than not leaving enough to your family.

When it comes to choosing your coverage, take the time to use one of the many free life insurance needs calculators online, or sit down with an insurance professional to help determine your needs. You can then compare quotes on life insurance policies from multiple companies in order to find the most affordable way to obtain all of the coverage you require.

Mortgage insurance, under that particular title, is not necessarily what you need, but you should consider a good term life policy to protect the investment in your home and your family’s ability to stay there. Whatever name you give it, life insurance that covers the value of your mortgage is a good idea. Having life insurance that can do double duty is usually the most effective way to provide for your dependents.

 

BUYING YOUR MORTAGE INSURANCE FROM YOUR LENDER (usually a BANK) OR BUYING IT FROM A BROKER – WHAT IS THE DIFFERENCE?

Here are some of the differences:

 

Policy is a group policy, you have no control You are the owner, you have control
Policy is owned by the lender You own the policy not the lender
Coverage equals the outstanding mortgage Coverage is higher than outstanding balance
Policy can be cancelled by lender or insurer Policy can only be cancelled by you
Benefit is paid to the lending institution Benefits is paid to your beneficiary
Policy cannot be transferred to another lender You can take your policy with you to another lender should you move your mortgage
Policy typically ends at age 70 Policy can continue to age 85
P.S.T. is often charged on premiums No P.S.T. is payable
Coverage is for mortgage sum only Coverage can be for higher amounts
No riders or added benefits Riders can be added to policy

 

To learn more of the advantages, call us and we will be happy to provide you a quote from the many companies we have access to

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