Buying a new property can be very exciting, but there are many things that need to be considered before you sign the papers. Mortgage life insurance is just one thing to consider before you buy a new home.
If you are renewing an existing mortgage or are buying a home for the first time, then your broker or lender may offer you group insurance.
You likely saved up quite a bit of money in order to purchase your dream home, so you may as well take the necessary steps sooner rather than later in order to protect your investment.
Here, we will help explain how you can use life insurance as a key to protect your mortgage.
How Mortgage Life Insurance Works
If you buy mortgage life insurance then you will need to obtain it after you have bought a new property. If you buy it from your agent then the premiums can be added to your home loan.
Mortgage life insurance will allow your family to keep your house and have its mortgage paid off, in the event that you die. It is usually sold through mortgage lenders or banks.
Personal life insurance can also be used to cover your mortgage payments if needed in the event that you die. However, unlike mortgage life insurance, it’s not tied to your mortgage. In other words, personal life insurance is an individual insurance product.
If you pass away, your beneficiaries, which will likely be your immediate family, can use the money to pay off a credit card, home, school and/or car loans.
Mortgage life insurance and mortgage loan insurance are also different, even though they sound similar. For example, if you purchase a home but put down less than 20% in the form of a down payment, then your lender will require that you obtain mortgage loan insurance.
Mortgage loan insurance will protect your financial institution if you default on the loan in the future. As for mortgage life insurance, it will pay off, or pay down your mortgage in the event that you die so that your loved ones will not have to worry about losing the home.
Can I use life insurance to cover my mortgage?
If you are a mortgage borrower then you can take out a mortgage life insurance policy. If you pass away while incorporated under the plan of your personal life insurance provider then you will be paid off.
When mortgage life insurance is a part of your business plan, it can help free up some cash that you may obtain from various insurance plans. The mortgage life insurance policy that you choose will depend on your unique needs and concerns.
A mortgage life insurance policy will pay off your mortgage in the event that you become sick, disabled or die. A private insurance policy will protect the lender if you are forced to default on your mortgage, even in the event that you actually paid for the coverage.
In other words, the entity that lent you the money will be compensated instead of your family, which may include your surviving spouse.
If you have any doubts about your coverage or wish to learn more about your insurance premium, then please speak to your provider or a financial advisor.
What’s the difference between mortgage life insurance and personal life insurance?
Mortgage life insurance is designed to cover the balance of your mortgage. The amount you need to pay will actually decrease as the mortgage is being paid down. As for personal life insurance, it is not connected to your mortgage in any meaningful way.
The amount you need to pay generally stays the same throughout the entirety of your personal life insurance policy. In addition, your mortgage life insurance coverage will terminate once you have fully paid off your property.
As for a personal life insurance policy, you will continue to receive coverage even after you have fully paid off your mortgage, as it is not connected to your mortgage. You and your loved ones will continue to obtain protection via your personal life insurance policy.
Moreover, if you opt for mortgage life insurance via your bank, then the process tends to be relatively easy and stress-free. You usually only need to answer a few questions pertaining to your general health and wellbeing.
Personal life insurance, on the other hand, tends to be a more laborious and time-consuming process. Your provider will typically delve deeper into your medical and family history, and may also require that you undergo several medical examinations in order to qualify.
Protect Your Loved Ones
Life insurance serves as a contingency plan for a hypothetical worse case scenario. It can be put towards everyday financial expenditures, as well as educational expenses and even your retirement needs.
For most people, buying a home will be the biggest investment they will ever make in their lives. It will take most people several decades in order to fully pay off their mortgage, and a lot can happen between now and then.
Mortgage life insurance is tied to your mortgage and will cover the outstanding balance on your mortgage in the event that you die before fully paying it off. Your personal life insurance may suffice in order to cover your mortgage payments, or it may not be sufficient.
Each financial institution is unique and offers different packages to its clients. In the event that you pass before paying off your mortgage, your mortgage life insurance policy will pay out your death benefit to your lender or mortgage company.
Your family will not receive any funds. As for a personal life insurance policy, the death benefit will go directly to your family. They can use the money to pay off the mortgage if they wish, or they can use the money to fund home renovations, vacations or pay off other debts instead.