So you have purchased a home and your lender has asked you to get mortgage insurance, but you aren’t sure if it is the right product for you or not.
What is mortgage insurance?
It is an insurance product that protects both you and the lender in case you or your partner either become ill or pass away and are unable to make payments on your mortgage.
Who do they pay the benefit to?
Does it stay with you when you move to a new home?
So what is the difference between Mortgage Insurance and Life Insurance you ask? Well, a lot. They are virtually the same in that they both can cover your mortgage, but personal life insurance is in most cases cheaper, and is much more flexible. The biggest difference? The insurance company will pay the benefit to you instead of “the lender“, so you can decide if you want to pay all of the mortgage with the proceeds or if you want to only pay part of it and use the rest for something else, such as a family trip or some type of special medical treatment, etc.
I have heard from some of my clients that their financial institution actually told them that they were required to purchase their mortgage insurance. This is a definite no-no and is not the truth. You legally are not required to carry mortgage insurance, although I would highly recommend that you do. A mortgage is the biggest debt you will ever carry and it is important that you and your family are protected from losing your home in case something should happen to any of the mortgage payers.
Another big advantage of having personal life insurance over mortgage insurance is that the policy is portable and follows you wherever you go, so you don’t need to reapply if you decide to sell and move to another home. It is also pre-underwritten vs. post-underwritten, so you don’t have to worry about them rejecting your claim due to any pre-existing health issues.
Here is a chart outlining the differences between mortgage insurance and life insurance. Please contact us if you have any questions or would like one of our brokers to give you a free in-home consultation.