It can seem tough comparing the mortgage insurance options that are available to you, but fret not, as understanding the different types of mortgage insurance available to Canadians isn’t as complex as it might appear.
In this blog post, we’ve set out to demystify your options. We’ll walk you through the two main types of mortgage insurance, while pointing out key factors you need to consider.
By the end of this post you’ll hopefully be able to make an informed decision that ensures your family’s financial security.
Table of Contents
Explaining Mortgage Insurance Options: What to Know Before Comparing
Mortgage insurance serves as a safeguard for your family’s largest asset – your home. In essence, it enables your loved ones to maintain ownership of the home in the event of your death. The specifics, however, can vary depending on the type of insurance.
Let’s delve deeper into the two main categories of mortgage insurance: Mortgage Life Insurance, and Mortgage Loan Insurance.
- YOU MIGHT ALSO LIKE: Renewing Mortgage in 2022? Here’s What Banks Don’t Want You to Know.
What is Mortgage Life Insurance?
Mortgage Life Insurance is a type of term life insurance that pays off your mortgage in the event of your death. Its primary purpose is to ensure that your family can keep the roof over their heads and avoid the financial burden of paying off the mortgage on their own.
The way it works is simple. When you take out a Mortgage Life Insurance policy, you’ll need to name a beneficiary, usually your spouse or partner. If you pass away during the policy’s term, the beneficiary will receive a lump sum payment.
Depending on their circumstance, they can then use this payment to pay off the mortgage entirely or make ongoing mortgage payments until the end of the term. With these policies they can also use the money for things outside of their mortgage, such as funeral expenses or paying off any other debts.
What is Mortgage Loan Insurance?
Mortgage LOAN Insurance, on the other hand, is a type of insurance that protects the lender in case you default on your mortgage payments. These are typically required when you make a down payment of less than 20% on your home purchase.
Mortgage Loan Insurance is not the same as Mortgage Life Insurance!
While Mortgage Life Insurance benefits your family by paying off the mortgage balance or other expenses, Mortgage Loan Insurance protects the lender by guaranteeing them repayment in case you’re unable to fulfill your mortgage obligations.
Mortgage Loan Insurance allows you to obtain a mortgage with a lower down payment. However, it does come with additional costs. Typically, these costs are added to your mortgage and paid over time.
Comparing Your Options: Mortgage Life Insurance vs Mortgage Loan Insurance
Now that we understand the basics, let’s compare the key differences between Mortgage Life Insurance and Mortgage Loan Insurance.
Of course, the decision between Mortgage Life Insurance and Mortgage Protection Insurance depends on your specific needs and priorities. But consider the following differences when making your choice:
Beneficiary Control
One of the most significant distinctions lies in the control over the death benefit. In Mortgage Life Insurance, the beneficiaries have full discretion over the usage of the death benefit, which is paid out as a tax-free lump sum. They can decide whether to use it for paying off the mortgage, other debts, or critical expenses such as education or retirement.
On the other hand, with Mortgage Loan Insurance, the death benefit is directly used to settle the outstanding mortgage amount. That means it goes straight to the bank.
Flexibility of Use
If you value the flexibility to allocate the death benefit as you see fit, Mortgage Life Insurance may be the better option for you. This allows your beneficiaries to use the payout in a way that best suits their financial needs and goals.
Another pertinent difference relates to portability. While transferring or refinancing your mortgage, Mortgage Life Insurance remains unaffected as it is a separate policy. Mortgage Protection Insurance, however, might require renegotiation or cancellation, adding an extra layer of complexity.
Premiums & Coverage Limits
When it comes to premiums and coverage limits, Mortgage Life Insurance allows for more control. You have the freedom to choose the coverage amount and term length that aligns with your specific needs.
This gives you the ability to customize your policy based on your individual circumstances. Your coverage also remains consistent even as you pay off the balance of your mortgage.
In contrast, Mortgage Loan Insurance offered by banks typically has a fixed coverage amount and limited term options. This means you may not have as much control over the policy terms and may have to settle for a predetermined coverage amount.
Furthermore, with Mortgage Loan Insurance your coverage will decrease over time as you pay off the remaining balance of your mortgage. This means that you will continue to pay a set amount for decreasing value over time.
Underwriting Process
The underwriting process for Mortgage Life Insurance typically involves a more detailed evaluation of your health and lifestyle. This allows for a more accurate assessment of risk, which can result in better rates for young individuals who are in good health and lead a low-risk lifestyle.
Mortgage Protection Insurance, on the other hand, often has a simplified underwriting process or no underwriting at all. This means that applicants do not need to undergo medical exams or provide detailed health information.
Luckily, homeowners can now get the best of both worlds with simplified No Medical Exam coverage for Mortgage Life Insurance.
These policies don’t require you to undergo a doctor visit making them a great choice for people with pre-existing conditions or lifestyle that would otherwise get them rejected by traditional insurance providers.
Conclusion
When it comes to protecting your home and your loved ones, having the right mortgage insurance is essential. Understanding the differences between Mortgage Life Insurance and Mortgage Loan Insurance can help you make an informed decision that aligns with your specific needs.
Whether you value flexibility, portability, or affordability, Mortgage Insurance Group offers comprehensive coverage options that cater to your unique circumstances.
With our hassle-free application process, you can obtain the protection you need to safeguard your home and provide financial security for your loved ones.
Don’t wait until it’s too late. Secure your home today with the right mortgage insurance.
Protect Your Home and Loved Ones Today
Choosing the right mortgage insurance to protect your home and loved ones is a decision of utmost importance.
Take control of your family’s future by getting a free quote from Mortgage Insurance Group. Our team of insurance experts will help you find the ideal policy that fits your needs and provides the peace of mind you deserve.
Get started now by clicking the “Get Started Now” button and receive your free quote in minutes!
