Getting or renewing a mortgage? Your lender is required to ask if you want mortgage insurance. So in the midst of all the paperwork flying around, you think, “Well, insurance that looks after my biggest investment sounds like a good thing.” And it is. But is mortgage insurance better than life insurance? When it comes to protecting your assets, it’s worth taking the time to do some research and compare the two.
Mortgage insurance vs. life insurance: the basics
Mortgage insurance should actually be called mortgage protection. It’s something that is offered by a lender, usually a bank, to cover what you owe that lender on your mortgage should you happen to die during the term of your mortgage (usually three to five years). Life insurance, whether bought through a broker or any number of insurance providers, pays a tax-free lump sum cash benefit to your beneficiaries upon your passing.
The big difference between mortgage insurance and life insurance is that mortgage insurance is a declining benefit. The protection only covers the balance of your mortgage; as you pay down your mortgage, the amount being covered decreases, even though your payments stay the same. If you die, only the outstanding balance is paid, and the lender is the beneficiary. With life insurance, coverage stays the same over time, the benefit paid out can go to whatever your beneficiaries choose and you have more choice as to what length of time you will be covered.
Dig a little deeper
With mortgage insurance, at the end of your term you will need to re-up your protection, but you are now five years older and your insurance rates will reflect that. Or maybe you’ve encountered some health issues along the way and are no longer eligible after already having paid into something for a term. Life insurance is fully portable; there is no need to re-qualify when the mortgage term ends, when it is paid off or if you want to change mortgage lenders. Finally, a missed mortgage payment often results in a loss of coverage, while most life insurance policies include a grace period of at least 30 days in the case of missed payments.
While it can be easier to qualify for mortgage insurance as health checks with physicians may not be required, in the case of death the underwriting of a mortgage protection policy can be extremely stringent. With life insurance, the research into health and lifestyle is done prior to signing the policy, so payout is typically very straightforward.
Mortgage insurance vs. life insurance: the bottom line
If you are looking for more control, better flexibility and protection for all your assets — and, most importantly, your family — life insurance just makes sense. At ADI Benefits, we will find insurance solutions that work best for you and your circumstances.