Wednesday, April 20, 2011

Mortgage Life Insurance vs. Term Life Insurance

The purpose of this post is simply to engage awareness regarding life insurance options. By no stretch of the imagination is this expert advice. I do not have a license in the insurance industry and I strongly recommend you speak to an experienced licensed professional.

When you are asked to sign mortgage papers, your mortgage broker or banker will ask you about mortgage life insurance. You then have to decide if you want it or not. The other option is life insurance, which is not connected to the home.

With mortgage life insurance you pay a monthly premium and if you perish the balance of your mortgage is paid off. With term life insurance you have a set policy amount and that does not change for the length of the term. If you have a $200,000 mortgage and you have mortgage life insurance in 10 years you may have a mortgage balance of $160,000, which will be the amount that is paid out. With term life insurance if you took out a $200,000 policy that will be the amount that is paid out. Usually the premium payments are about the same, you just need to decide what is the best value is for you.

One thing I want to make VERY clear. If you purchase mortgage life insurance with the lender that is holding your mortgage and you decide to switch lenders at your renewal for a better rate you will also have to re-apply for insurance as well. Now you are five years older, you may have had a minor or major health issue. Now what? How much will your new premium be? Maybe you can’t even get insurance. You are stuck with whatever rate your lender offers you because you can no longer get insurance. Most of the time if you bought your insurance from your mortgage broker it is transferable to a different lender. As well sometimes a bank will sell you transferable insurance, you just need to check your policy or have a qualified person check into it for you.

There are times when you may want the mortgage life insurance. You have not had the time to speak with an insurance specialist and are signing your mortgage papers. Once you sign that paper with your bank or mortgage broker and/or it is sent in for processing you are covered, even if your closing date is still three months away. After you have spoken with an insurance specialist you can then cancel the mortgage life insurance. You may also want to sign as extra coverage, sometimes there may be little perks with the mortgage life insurance that suit your needs.

There are other options as well; disability insurance and critical illness insurance. To make sure you are properly covered and have all your needs met; it may be a good idea to speak with an insurance specialist instead of buying your insurance from a mortgage broker or banker. We refer out clients to someone who can help them with planning their retirement, children’s education, their investments as well as insurance needs.

Please feel free to comment or email me with any questions or concerns.

Ron Miller
Butler Mortgages
905-667-0699
ron.miller@butlermortgages.com

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