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Look before you leap into mortgage insurance


We all love convenience, but it can have a steep price. That’s the case when your friendly lender offers you mortgage life insurance as an “add-on” to your new mortgage.

Although it’s smart to arrange protection – coverage to pay off your mortgage in case you or your spouse should die – investigate other term or life insurance options before you sign up for that quick and easy mortgage life policy. Here are some considerations:

The price: Mortgage insurance may be more expensive than an individual life policy you could buy separately from an independent advisor or insurance broker. That’s because mortgage insurance is just a standard ‘group’ policy and rates aren’t adjusted by your health, or other variables that could save you money.

The beneficiary: With mortgage insurance, your bank or lender is the beneficiary. If you die, they get the funds to pay off your mortgage. In contrast, with an individual life policy, you pick the beneficiary and they receive the proceeds to use however they wish – to pay off the mortgage or for any other purpose. 

Those premiums: Your mortgage insurance premiums stay the same over the years even though your coverage automatically shrinks as your mortgage balance shrinks.  Your coverage does not decline with an individual life policy.

The features: A lender’s mortgage insurance usually has no additional benefits or features, whereas an individual life policy can be customized with provisions you like (accidental death benefit, for example).age or for any other purpose. 

Medical conditions: When buying creditor insurance with a lender, your coverage could be denied at the time of a claim if questions about your medical history were not answered correctly when you applied at the bank. With an individual life insurance policy, the underwriting occurs at the time the policy is issued, ensuring any future claims will be paid.

Portability: With mortgage insurance, if you switched lenders, you would have to re-qualify for a new policy. The risk is that you could find yourself uninsurable if your health deteriorated. With an individual life policy you control your own policy. As long as you pay your planned premiums there is no need to re-qualify, even if you change lenders.

In light of these factors, it’s a good idea to shop around for the best solution for you and your family before you sign with your lender. Feel free to call our office to learn more.

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