Life Insurance vs. Mortgage Insurance
When you obtain a mortgage the lender may suggest that you take out Mortgage Insurance (also known as Creditor Life Insurance). Many people chose not to take it, but they also don’t have Life Insurance, and this is problematic as you should definitely have one or the other! So let me explain what they are so you can make the right decision.
First let’s explain what Mortgage Insurance is. This type of insurance policy covers the costs of your mortgage should you pass away prior to the full repayment of that loan (There are also Disability and Critical Illness insurance to cover these incidentals should they arise prior to debt repayment). The two major benefits of this type of insurance is estate protection, and ease of application.
Typically when you pass away while still repaying your mortgage, your estate is required to pay that debt prior to any inheritance being passed to your kin. When you have Mortgage Insurance, your insurance will pay your mortgage off in full, granting your family the full estate value.
Ease of Application/Approval
Mortgage Insurance does not require the same lengthy medical questionnaires or tests, nor is there the same underwriting requirements as life insurance.
So what is Life Insurance? This type of allows you to pick the amount you would like to be covered for ($300,000, a million, or more) and it allows you to select the length of time your policy lasts for. The two main benefits of this type of insurance are freedom of use, and non-declining value.
When you pass away, your Life Insurance policy gets paid directly to the person you indicated as the recipient. That individual can then choose how that money is used/distributed.
Life Insurance Policy Amount
Unlike Mortgage Insurance, Life Insurance does not decline as your debts are paid off or as the term comes to an end. The amount of your policy remains the same the entire term of your policy!
So how do you choose between the two, it really depends on your personal needs. However, when you get your mortgage, if you do not have life insurance already, you should definitely accept your mortgage insurance offer as it is easy to apply for and easy to cancel once you get a life insurance.
No one plans to pass away before they repay their mortgage, but life is unexpected and it is better to protect your loved ones from having to pay that debt off!
Contact me any time, I’m here to help!