WHAT’S THE DIFFERENCE BETWEEN MORTGAGE INSURANCE AND LIFE INSURANCE?
Mortgage insurance is a form of life insurance and is often combined with some Disability insurance and Critical Illness insurance. Mortgage insurance is always offered by banks, mortgage companies and is often included as part of your monthly mortgage payments. It is convenient, but given it has much less underwriting/qualifying criteria, it also has more limitations than having individual coverage.
The owner of mortgage insurance is your bank or mortgage company. They are also the beneficiary of the policies so if anything happens they’re the ones that get paid. As such, the home owner/mortgagor have little to no control over the terms. Also, because there is little or no underwriting, there is no guarantee that these policies will pay out at time of claim (on death or sickness).
Mortgage insurance is declining coverage and only pays out once. As you pay down your mortgage, the coverage also decreases (not your premium costs). While mortgages represent most families largest financial burden, it’s not their only commitment so often is not sufficient coverage. Having individual coverage, means the full value of the policy will be paid out at time of claim. So you get what you pay for. If a husband and wife both have individual coverage then these policies pay out twice. With most families needing both parents/partners income to cover daily living expenses, it is important that both people have coverage.
Mortgage insurance is attached to your mortgage, so any time you touch your mortgage – ie sell your home, move, change mortgage providers, refinance, etc you lose the coverage and have to reapply. This will increase the cost as you will be older. If your health changes in the interim, your ability to get coverage will also be impacted. It may be more expensive or you may not be eligible for coverage.
Most people think mortgage insurance is cheaper. In actual fact, in most cases it is more expensive than having individual coverage. If people are in good health, having individual coverage may entitle them to preferred rates which will reduce the premium costs even more.
Having individual coverage allows you to customize a protection plan to suit your family needs, circumstances and goals. Not only for the present but also to allow for future changes. Individual insurance provides greater flexibility and customization. Always best to consult a licensed insurance advisor to be aware of your options and to customize a plan best suited for your needs and not the banks