Insuring Your Mortgage With Term Life

 

Your mortgage is insured and you feel as snug as a bug in a rug. Have you ever wondered what mortgage insurance really does, and if it is the proper type of insurance for you?

Unfortunately, what mortgage insurance is, how it works, along with the fact that you are not obligated to sign up for this coverage is usually not explained to the homebuyers at the time of signing.

The real name for this type of life insurance is "creditors' life insurance", and it is designed to protect the bank/and or lender should you or your spouse pass away before the loan has been repaid in its entirety.

Mortgage insurance is a joint life, first to die, decreasing term policy that has a declining balance, meaning both you and your spouse are insured, however it will pay out only once, upon the first death. It pays out the amount owing on your mortgage to the beneficiary (the bank). Unfortunately, as the amount of insurance declines, typically the amount you pay for the insurance does not.

Knowing your options is your best strategy to making an informed decision. One option to consider is Term Life Insurance. It could be the best coverage that you can purchase to cover your mortgage. Unlike mortgage insurance it will not decrease, unless you want it to. Also the amount of insurance you purchase, as well as the length of time it stays in force, is up to you. With Term Life Insurance, you choose your beneficiary(ies) and they have the freedom to choose how best to use the money should you die. For example, some may decide that paying down the mortgage is the highest priority, others may want to invest the money.

Of concern is the fact that every time you renew your mortgage or you change banks you must reapply for new insurance. This is not a problem if you are a healthy person. If you read the fine print most institutions include, it states that if you answer "yes" to any of the medical questions, the contract is invalid. This is fine, because you will know whether you are covered or not. However, upon renewal of your mortgage you have to reapply for insurance with the bank, and if you answer "yes" to any of the medical questions, you may go from being insured to being uninsured. At this point you may also risk being unable to purchase any type of life insurance. Then should you pass away, the surviving spouse becomes responsible to pay the mortgage.

Don't wait until its time to renew your mortgage to take advantage of the benefits of Term Life Insurance! Talk to your insurance agent or financial planner now, and take a look at Term Life Insurance. You may be pleasantly surprised to find it costs less than mortgage insurance.

Written by: Jennifer Rae, Insurance Representative
SISIP Financial Services, Halifax