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Mortgage Insurance vs Life Insurance

Posted 6/19/2018

Mortgage insurance generally is bank owned, you can buy your own Mortgage Insurance, but what I'm talking about here is when you buy a new home and are signing your mortgage agreement they slip in a mortgage insurance application. You are already signing and initialling so many things anyway you're pretty much just trusting your mortgage agent and signing whatever they tell you. Especially for a young person buying their first home, you're putting a lot of trust in this person. This is the only reason the bank is able to sell any mortgage insurance at all. If you were to sit down and look at your options I don't think anyone would choose Mortgage Insurance over Life Insurance. 

Mortgage insurance is owned by the bank so if you switch your mortgage over from one bank to another you'd have to purchase a new mortgage insurance policy. With Life insurance you own your policy and you can move your mortgage whenever it makes sense to do so.

Mortgage insurance only covers your mortgage so as you pay off your mortgage your coverage also decreases. Your weekly or monthly payment doesn't decrease, but the amount that the mortgage insurance company has to pay out decreases. A life insurance policy keeps the same amount of coverage over the term of your policy. If you have a 250,000 life insurance policy and your mortgage is down to 100,000 your beneficiary gets the entire 250,000 and can pay off the mortgage and still have 150,000 left.

Which brings up the next point which is your beneficiary. With Mortgage Insurance it's easy, the Bank is your beneficiary. Your beneficiary with Life Insurance is your choice. Whoever you choose will get a tax-free lump sum of money. You pay for either policy so why not choose who the money goes to?

I understand that it's so easy to buy mortgage insurance and it seems like the prudent thing to do. You buy the warranty on everything else so just check the box and sign it's so easy. They have a few questions, but not extensive. Life insurance applications on the other hand have many questions and they may even have a nurse come over for vitals and other medical tests. This is because most life insurance is medically underwritten before you get approved for coverage. Which means if you do pass away you have the peace of mind that your policy will pay out. The reason there are less questions and no medical tests for Mortgage Insurance is because most times it is underwritten at time of claim. Meaning if you were to die they'll look into everything and if you happen to check a wrong box,(i.e. you said you were a non-smoker even though you do occasionally smoke at parties) they could very well deny your claim and your family would still have a mortgage as well as funeral costs and the loss of your income all while mourning your passing. A trusted Life Insurance agent will be asking you those questions and make sure the application is filled out correctly so that in the unfortunate event of your death, your loved ones will get the money that is so needed at that time.

Protect your family, there's more than just the cost of your mortgage, so don't just buy mortgage insurance, take the purchase of your house as an opportunity to assess how much money your family would actually need if you passed away right now. Would you want it to cover all your debts including your mortgage? Cover funeral expenses? Even more importantly cover the income you provide for the family for a length of time (usually until your youngest child is 20-25yo). This can be done with a Life Insurance policy, but not with Mortgage Insurance.

You can also renew or convert your term life insurance policy. Renewing meaning to extend the term and converting meaning converting your term life into a whole life policy, I'll talk more about Whole Life Insurance in my next blog, but the important take away here is that you have options because you own your policy. You're paying for it, you should own it. Mortgage Insurance is generally more expensive than Term Life Insurance too! I hope this helps, all the best!

Insurance services are provided by Kirk Edward Davidson.