Mortgage Insurance vs Term Life Insurance, There is a Difference.
Congratulations!! You’ve just completed one of the largest transactions of your life! You’ve bought your brand new home. Your bank or the mortgage lender is going over your mortgage documents and they ask you if you’d like to protect your new home with mortgage insurance? Why wouldn’t you? You just have to either put a tick in the accept box or in the decline box. Why would you decline to ensure your beautiful new home?
The banks have a terrible habit of including mortgage insurance in with the mortgage agreement so when they are reading through the complete agreement with you and get to the page where the mortgage insurance is listed most people put their initial in the acceptance box as they usually don’t explain the coverage to you and most people feel that they have to accept it as it’s not a lot of money and they feel it’s the right thing to do. Plus, most people would feel uncomfortable putting their initials in the decline box as they do want to protect their new home!
Let us tell you why you should decline Mortgage Insurance!
There is much better coverage to be found, and most times your bank or mortgage lender don’t do a very good job informing their clients of their options.
We’d like to explain the differences before we go any further of these types of life insurance: So you understand fully what they are:
- Mortgage insurance is designed to pay off your mortgage balance in the event of your passing. This benefit is paid directly to your beneficiary (which is the lender). Your premiums could increase every time your mortgage renews as you are now older and the premiums are based on your age. However, your coverage declines as your mortgage balance does.
- Term life insurance is designed to protect your family in the event of your passing for things such as your mortgage, income replacement, final expenses, or education funds. The benefit is paid to a beneficiary (of your choice) and your coverage and premiums remain level for the duration of the policy term generally 10, 20, 25, 30 or even 35 years.
Call any financial advisor/planner in Canada and they will tell you the same thing, term life insurance is a far superior financial product compared to mortgage insurance.
When you complete an application for a life insurance policy the application is sent to the Underwriting department and they will check to see if you do in fact qualify for the life insurance policy that you applied for. Once the policy is issued the term life insurance policy is guaranteed to pay out if the insured was to pass away. However, Mortgage Insurance is underwritten very differently; the application is not sent to the Underwriting department straight away as it’s underwritten after you make a claim. Therefore, there are no guarantees that the mortgage insurance policy will pay the claim. This is the most disgusting difference between these two policies. If the policy is accepted, it will only pay the lender the balance owing of the mortgage
- PREMIUMS – Mortgage insurance premiums are generally more expensive overall and the coverage is declining. Term life insurance premiums are generally cheaper, and the coverage stays the same.
- BENEFIT – Mortgage insurance pays directly to your bank or mortgage lender. Term life insurance is owned by you, this means you have total control over your coverage. You choose how the benefit is paid, and your beneficiary can choose how to use the benefit. If they want to invest the money instead of paying off the mortgage, they have the right to do that.
- CONVENIENCE – Mortgage insurance is bound to your mortgage, so if you move or change lenders, you must take out new coverage, at your current age and health, meaning your premiums will go up. Term life insurance stays with you regardless of your living situation, and you can choose your coverage. This means you can cover all your debts, income, and other needs, all under one policy.
Life insurance is an extremely important financial tool and it’s very important that you have the right amount and type. Consider all your options and please call the Blackmore Levy Group and talk to one of our Financial Architects to learn more.