When it comes to buying a home, a major step of the process is deciding on insurance to protect your new investment. With various terms and financial jargon being tossed around, it can be tough to understand exactly which option is best suited for you when it comes to choosing between mortgage insurance and mortgage term life insurance.
While mortgage insurance is often strongly recommended, due to the fact that it protects the investment of your home if you were to pass away or become unable to financially make good on your payments long term it can provide you and your family with peace of mind that the mortgage is paid and your family won’t be crushed by financial burden. However, things can get a little complicated when it comes to mortgage insurance, as various terms like “mortgage life insurance” and “creditor insurance” also get thrown into the mix. While these may seem like a variety of options, they all somewhat mean the same thing, with slightly different variables.
Basically with mortgage insurance, you buy coverage from the CMHC and the premiums are added to your monthly mortgage payments or can be paid in a lump sum each year. There is an alternative known as mortgage term life insurance as well which might have more value to you as a home owner in the long run.
What Is It?
Mortgage term life insurance is a policy that helps to guarantee your family a tax-free benefit in the event of your death by giving them funds they can use to help with mortgage payments. Generally, policy terms range from 10-30 years, depending on your mortgage length as you have to choose a term for how long the insurance policy will be in place, with premiums paid monthly, quarterly, semi-annually or annually. Essentially, mortgage life insurance is specially designed to protect the repayment of your mortgage loan, thus if the policyholder was to die while the mortgage life insurance policy was in force, the policy would provide a payout that will sufficiently cover the repayment of the outstanding mortgage loan.
What Are The Benefits?
The major benefit of mortgage term life insurance is that in the event of your death, your family will have a mortgage-free home. If your mortgage payments take away a substantial piece of your budget each month, having peace of mind that the financial responsibility will be taken care of can have a hugely positive impact. Should you pass away, or even become gravely ill or unable to work, your mortgage life insurance policy will become active and cover the remainder of the loan depending on the terms of the policy.
Unlike most traditional life insurance policies, mortgage term life insurance doesn’t only bring benefits with death. In fact, even in the event of illness or injury causing a disability that would prevent you from working, mortgage term life insurance will still usually cover your payments.
While there may be no actual price tag on peace of mind, the biggest advantage mortgage term life insurance can offer you, prior to your death or injury, is the comfort in knowing your family is protected should a tragic event occur. This should help you sleep soundly at night, knowing that after an event of a tragedy, your family can remain in the home they’ve lived in and loved without any financial worries.
What Are The Differences?
Instead of regular mortgage insurance, term life insurance can be purchased for the amount of your mortgage from an insurance broker or agent. While it may seem like both have an end purpose of paying off your mortgage in the event of your death, there are some significant differences between the two options.
For starters, the cost of premiums on regular mortgage insurance is generally higher than on a term life insurance policy, although it provides less convenience in the long term. Should you move into a new home, you’ll have to reapply for mortgage insurance, whereas mortgage life insurance stays with you, wherever you go.
The next major difference is the payout. Typically, mortgage insurance payouts decrease over time, to align with what is owned on the remainder of your loan. However, term life insurance stays consistent throughout your set term.
What If I Already Have Life Insurance?
It’s not uncommon for homebuyers to already have a life insurance policy when they apply for a mortgage, so it’s important to do a little investigating before you make a decision. Be sure to look into how much coverage you have and how much the home purchase will increase your needed coverage.
If you already have a policy in place, I suggest leaving it in force and adding an additional term policy to protect your mortgage. Adding a term life mortgage insurance policy as an extra level of protection ensures that your family is more than safe, and gives them the money to pay off the existing mortgage balance, while still receiving death benefits from the original policy.
Thinking about the future should not bring on stress and worry, even when facing the possibility of death. However, it is important to be prepared and protected, should a tragedy strike. Providing your family with financial coverage in the event of your death can give you peace of mind in knowing that their home is protected and their future is secured. If you have any questions about mortgage term life insurance, don’t hesitate to give me a call at 705-315-0516. I am always happy to help you better plan and protect the financial future for you and your family.