When you go to buy a home, you will hear the term mortgage insurance being bandied about. Some people might tell you that you need to get one. At the same time, others will probably tell you that you don’t need it if you already have life insurance. All this information can be confusing and can leave you wondering whether you need one more than the other or whether you should just get both. Let’s take a look.
Mortgage insurance is very different from term life insurance. You get mortgage insurance from the same institution that is providing your mortgage and have the premium amounts clubbed with your mortgage payments. The purpose of the insurance is if something happens to you, you don’t want your family to be left with the mortgage payments. Mortgage insurance is basically a term life insurance policy that is meant to ensure that your mortgage balance is paid in the event of your death during the term of the mortgage. As the mortgage balance decreases so does your coverage amount but you still pay same insurance premiums. If you change your lender most likely you have to get new insurance again. You also have to find an additional insurance to cover you other debts, as mortgage insurance only covers your mortgage. This is especially helpful for your family if you are the main earner in the household. It ensures that you are secure that if anything happens to you, your family can still continue to live in the same home without mortgage payments.
Term life insurance is insuring your life for a period of 10, 20 or 30 years. It really is different from mortgage insurance. With life insurance you decide whom the death benefit amount is paid out to whereas with mortgage insurance bank is the beneficiary. You are also able to cover all the other debt under one insurance policy and in case you change your mortgage to different lender you don’t have to get a new insurance. Your death benefit stays the same for the term even though your mortgage amount decreases. If you already have term life insurance, you might want to ensure that the death benefits are enough to cover your mortgage balance, other debt and have something left for the family. If they aren’t you can boost the coverage amount.
The major difference between the two is that as time goes by and the mortgage reduces, so does the payout from the mortgage insurance. In term life insurance the payout remains the same.
Beneficiary designations, with life insurance you will choose the beneficiary/beneficiaries while with mortgage insurance bank is the beneficiary.
Flexibility, As life go your needs for insurance will change and with term life insurance you have the option to change your insurance while with mortgage insurance through lender you don’t have the flexibility to change.
Portability, you may not be able to talk your mortgage insurance with you if you change the lender but if you have term insurance, it goes with you without re-applying or proving the insurability.