What's the difference between insurance from mortgage lenders and personal life insurance when it comes to protecting your mortgage? Read more below to find out.
Buying a home is a major decision and possibly the biggest investment of your life.
You may be confused about what kind of insurance you need. Many new home owners face a similar dilemma.
Should they purchase insurance from the mortgage lenders or personal life insurance from a broker?
Being a new homeowner is hard enough. There are so many things to consider. Worrying about insurance is another headache.
It's common for new home owners to receive solicitations (scare tactics actually) from their lender urging them to buy mortgage protection life insurance.
But, before making a decision about whether or not to purchase insurance from your lender, take a look at personal term life insurance. It might just be a better option for you and your family.
What is the best way to protect your biggest investment, your home, if you die?
The answer is insurance, of course. But, what kind is better - mortgage protection or term life?
Mortgage protection insurance is a form of life insurance sold by lending institutions and insurance companies. It is specifically designed to pay off your mortgage should you die during the term of the policy.
Mortgage lenders sometimes use scare tactics and emotional pleas to get your attention and convince you to purchase mortgage protection insurance.
After all, it's a comforting thought knowing your mortgage would be paid off if something happens to you. No one wants to leave a loved one with that kind of burden.
They can make it pretty tempting, but don't fall for the scare tactics. Instead, it's important to consider all your options.
What they don't tell you is that most people don't really need mortgage protection life insurance.
In fact, you can buy personal life insurance from an insurance agent that can protect your biggest investment and your family at the same time.
Both types of insurance will pay your mortgage off if you die, but there are some real differences to consider.
The average healthy, nonsmoker will pay more for mortgage protection insurance than they would for term life insurance.
It's hard to get a quote for mortgage protection insurance online, and the prices can differ drastically and be subject to underwriting. And, those costs become more pronounced as you age.
In most cases, premiums for a mortgage protection policy from mortgage lenders are only fixed for five years. But, a term policy can have up to a 40-year fixed premium - no surprises or increases. That's a definite plus.
With a personal life insurance policy, your beneficiaries are able to use the money they receive as they choose.
Many mortgage protection insurance policies, especially those purchased from mortgage lenders, are less flexible.
In fact, the insurer will likely send the benefit straight to the lender. Beneficiaries may never see a penny of your benefit payment.
The Ever Shrinking Payout
Most mortgage protection insurance policies offer level premiums for the duration of the insurance policy. That means premiums remain at the same rate.
The downside? The coverage shrinks as the payout amount decreases. In other words, your payout decreases every time you make a mortgage payment.
That's just another example of why you're better off with a life insurance policy that provides a level death benefit. This allows your beneficiary rather than your lender to receive the payout.
The Sales Pitch
Don't be surprised when mortgage lenders drive the point home that you need their products. They can be relentless.
They will tell you that your beneficiaries will be left with too little after your mortgage is paid off. And, that point may be true.
If you think you need more life insurance, you should buy more. In most cases purchasing a personal life insurance policy or adding more coverage to your existing policy is a better bet.
Mortgage payoff isn't always the best choice for insurance proceeds, and your beneficiaries should have that option available to them.
The Best Bet
Most financial and insurance experts agree that buying insurance that only pays certain bills isn't the best choice.
It's true that many insurance policies are more flexible than in years past. But, most agree that term life insurance is a better choice than mortgage protection life insurance sold by mortgage lenders.
And, you have to consider your situation and needs. If something happens to you, is your family protected? Do you just want a policy that will pay off your mortgage or would you rather have a term life policy that covers your mortgage and all your financial needs?
Do you just want a policy that will pay off your mortgage? Or, would you rather have a term life policy that covers your mortgage and all your financial needs?
If that's you, then term life insurance is your best bet.
But, buyer beware. Before diving into mortgage protection insurance at the recommendation of your lender, do your research on term life insurance.
That's the million dollar question. Many would say you can't have too much but you can definitely have too little.
No one likes the thought of their family struggling to pay bills or pay off the mortgage. That's why we purchase insurance, after all.
You can't beat the peace of mind you get with knowing your family is protected. But, before you jump into such a big decision, take the time to consult an insurance professional and compare quotes from multiple companies.
Mortgage protection insurance may not be the ideal solution for you and your loved ones. Instead, having term life insurance that also covers the value of your mortgage may be better.
The insurance professionals at Insurdinary.ca make it easy and will guide you through the whole process.
They will help you find the most affordable way to obtain all the coverage you need - including life, medical, and dental insurance too.
Then you can enjoy your new home and relax knowing your family is protected.
Contact Insurdinary today for your insurance needs and experience your own peace of mind.