Mortgage Insurance
Buying a home is you major investment. When you arrange a mortgage with a financial institution, they must ask you if you want to insure your mortgage through them. Buying mortgage insurance is a very wise decision because life is unpredictable and some unforeseen event could always happen.
But mortgage insurance from your bank or other lender may not be your best alternative. Home buyers sometimes mistakenly think that loan approval and mortgage insurance are a "package deal" or that a loan is dependent upon having such coverage. It is often easier to simply purchase the insurance offered by the institution at hand. Some people also assume that all mortgage plans are the same. The fact of the matter is that mortgage insurance is different from one plan to the next and can be purchased apart from the lending institution.
Below is the summary of some of the advantages of using an insurance agency for your mortgage insurance needs. This list covers life, disability and critical illness insurance.
- Control over the contract (you are the owner)
- Ability to choose the beneficiary
- Underwriting done at the time of application, rather than at the time of claim.
- Guaranteed, level insurance premiums for the entire term of the contract
- Ability to convert the contract to permanent life insurance with no medical examination
- Protection against a premium increase due to increase in interest rates upon mortgage renewal
- Critical illness insurance rider (covering up to 25 illnesses)
- Disability definition of own occupation covers 24 months (instead of the usual 12)
- Coverage remains in force if you change lending institutions
There are other ways, besides what is called "mortgage insurance" to cover your insurance needs when you take out a mortgage. Mortgage insurance is not a "one-size-fits-all" product. What is best for you will depend on your age, smoking status, and true needs. This is why it is recommended that you consult with a reliable Insurance Advisor who is trained in these products.
Mortgage life insurance is a type of decreasing term insurance. Depending on your overall needs, age, and a few other factors, you may be better off purchasing 10-year or 20-year term insurance to cover this need. Most Insurance Advisors automatically compare this as an option and explain the difference to you.
If you die while covered with regular mortgage life insurance, the payout is in direct proportion to the balance of the mortgage loan, while term insurance is going to pay out the full face amount throughout the full term.
If your mortgage is nearly paid off, say there is only a $5,000 balance, and you die, that's all your beneficiary will receive if you have the regular mortgage coverage. On the other hand, if you had purchased a 20-year term product and die near the end of the mortgage term, the payout would be the full face amount - the same as when you purchased it.
Sometimes, especially if you are young, this option is very reasonably priced and can be a much better option.
