How Can I Use Life Insurance To Cover My Mortgage?

September 25, 2019

Let’s take a look at some reasons you should get your mortgage insurance directly from an insurance company.

Premiums

With mortgage insurance, everyone pays the same premium. There are no discounts for being a non-smoker or being healthy (or being a woman who will statistically live longer) which usually means you’re usually not getting the best deal.

Life Insurance provides a more customized rate by factoring in these important factors

Underwriting

Your cost of insurance is based on your age, health, activities and pre-existing conditions, but as long as you qualify and pay your premiums, your coverage is guaranteed and the policy will pay out.

The bank’s mortgage insurance may underwrite your policy after a claim is made, at which point they may decide you never did qualify and wind up paying nothing. This practice seems terrible, but apparently it really happens.

Declining Benefit

The bank’s mortgage insurance benefit value declines as you pay down your mortgage which means you continue to pay the same price for insurance and it’s actually worth less.

Traditional term policies keep their value and usually do so with lower premiums.

Beneficiary

With mortgage life insurance, the beneficiary is the bank — with personal life insurance, you get to name your beneficiary. You (or your beneficiary) will have the flexibility to choose how to spend the money.

They may not need it to pay off the mortgage and may choose to sell the property.

In general, though, this means better financial security for your loved ones.

Portability

Mortgage life insurance is tied to your mortgage. If you buy another home or chose a different mortgage lender at renewal, you’ll have to take it out again. A simple term-life policy will be portable and continue to cover you regardless of who you have your mortgage with.

Needs Analysis

If you already have life insurance, you may actually already have sufficient (or partial) coverage for your mortgage. Only a proper needs analysis by an insurance adviser will determine that. Your mortgage lender will not bother with this and always cover the full mortgage amount.

Consolidation of Coverage

With life insurance, you can consolidate all your insurance needs (mortgage, income replacement at death, education, childcare, etc.) into one policy.  This saves you money on overhead and fees of having multiple plans.

With the bank, you can only cover the mortgage and must hold different insurance policies for the rest of your needs.

 

If you’re not sure if you have sufficient coverage, one of our advisors would be more than happy to give you practical advice on what works for you.