Mortgage Insurance vs Term Life Insurance: Which is right for you?
For most Canadians, a home is the largest investment they’ll ever make. But what’s the best way to protect that investment should the unexpected happen and you die?
Insurance is the easy answer. But exactly what kind: mortgage insurance or term life insurance? While both ensure that your mortgage is paid should something happen to you or your partner, there are significant differences between the two options.
The key difference between the two options is this: mortgage insurance pays the remaining balance of your mortgage to the bank if a person listed on the mortgage passes away and ensures that you aren’t burdening family with an unforeseen expense; term life insurance which can provide coverage for 5, 10, 20 or 30 years, and pays the entire death benefit amount to your beneficiary. Then they can then decide whether to pay off the mortgage or use the money for other priorities.
Mortgage insurance is typically provided through the bank or financial institution that’s lending you the money for your mortgage and added onto your monthly payments. It is quick and easy to arrange, and, typically, only requires answering a few health-related questions. Buying a term life insurance policy, on the other hand, involves answering some medical questions about your health history. Even though life insurance is a bit more involved you have the advantage of working with an insurance specialist that can look at your overall needs as well as mortgage needs.
All this means there are many factors to consider in deciding on the best way to protect your home and provide for the future. Mortgage insurance and term life insurance serve the same purpose but there are key differences such as follows:
- Cost: Premiums on mortgage insurance are typically higher than on term life insurance. Secondly, with a lender-offered mortgage insurance plan, the benefit decreases as you pay down your mortgage, but the premiums remain the same resulting in a higher cost per coverage as the mortgage decreases.
- Convenience: While mortgage Insurance through your lender can usually be arranged quickly and easily when you sign your mortgage papers, term life insurance is handled by your trusted insurance advisor who will take the time to make sure the process is streamlined and relatively effortless.
- Portability: If you change lenders or sell and buy a new home, you’ll have to apply for a new mortgage insurance policy. Term life insurance, however, stays with you.
- Payout: The beneficiary on mortgage Insurance is the bank. It may not be prudent to pay off the mortgage if the mortgage rate is 4% and present investment rates are 6%. It would be better to keep paying the mortgage payments and invest but you have no choice. Term life insurance allows you to choose the beneficiary who can decide the most prudent action to take.
- Conversion to Lifetime Insurance: With Mortgage Insurance there are no options. As noted above, the coverage goes down as the mortgage goes down. If you had a medical issue you want the ability to keep coverage at the initial amount. But even more important you can change or convert your term life coverage to lifetime coverage. The rate is based on your age AND you cannot be refused.
Contact Merit Insurance Brokers today to discuss your options and determine which type of insurance best suits your needs. Our personalized approach will ensure all your options are reviewed and can help you make the best decision for YOU.
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Merit Insurance has you covered with a variety of affordable options to meet your specific needs. Call your Merit broker for a quote today at 1-800-563-3383 or contact us online. We’ll customize an insurance policy with affordable rates and deductible options that meet your needs.
