Lets say you bought a new house or condo, and you are considering mortgage insurance. Since mortgage insurance really is a form of life insurance, they’re both the same. Potatoe, Potaahto, right? Not so fast…..lets look at some key differences.
Mortgage Insurance vs. Life Insurance
Life Insurance means YOU are the beneficiary
In Life Insurance, YOU are the beneficiary, as opposed to mortgage insurance where the bank is automatically named as the beneficiary. This is important, because it means that YOU decide how the insurance payout is used….as opposed to the payout only going against the mortgage balance.
The Payout amount remains the same
With mortgage insurance, only the remaining balance is paid off in case of your demise. So as you start to pay off your mortgage over the years, the benefit of your mortgage insurance actually decreases over time. With Life Insurance, the payout remains the same.
With Life Insurance, underwriting occurs at inception of policy as opposed to waiting until something happens to find out whether you qualify for the coverage. The added benefit of this is that the premiums are based on you and your current health. Discounts for non-smokers and age and sex apply in the Life Insurance option.
This last part is actually very important. A good friend of mine just learned the hard way: His mom had passed away and after about 18 months, the bank still had not agreed to pay off the mortgage insurance, fighting the family every step of the way. As my friend put it: “I’ll never get mortgage insurance again. Bo, the agreement is 12-pages long, and 11-1/2 of those pages are designed to get the bank out of paying the benefits”….
Probably the biggest factor IN FAVOR of getting mortgage insurance is the simplicity of signing a document at the same time as signing the mortgage application. Simple,…easy…..done! As my friend put it...just pray you never need it!
Here is a summary of the differences:
If you’re thinking of buying your first (or next) house or condo, check out these 7 biggest mistakes made by home buyers.
And beware of the Closing Costs when buying a home in Winnipeg.