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When you buy a home, you will probably be offered a term life insurance policy or mortgage life insurance by someone you know. The problem is that many people fail to understand the difference between both types of coverage.
To help you decide which option is best for you, we’re going to discuss some of the main differences between the two: The Price Difference Mortgage life insurance: This type of insurance requires policy holders to pay a premium per each $1000 of their mortgage balance. Everyone in your age category pays the same premium rate because very few or no health-related questions are asked when you obtain mortgage life insurance. This will benefit anyone who suffers poor health or has a pre-existing medical condition. However, it may cost you more if you are a healthy individual. The purpose of mortgage life insurance is to pay off the balance of your mortgage if any individual listed on the loan document dies beforehand. With mortgage life insurance, the amount of your coverage—but not your payments—will decrease as your outstanding mortgage balance decreases. Therefore, the cost of your mortgage insurance actually increases each time you make a mortgage payment. Term life insurance: This type of insurance requires you to answer some medical questions, which is why it normally costs less than mortgage life insurance. Insurance companies can assess your risk of dying based on your general health. You end up paying premiums based on your current health status, rather than that of the general population. Term life insurance can be used to cover more than merely your mortgage balance. For example, you can also use this type of insurance to pay off a credit card balance, cover daily living expenses for surviving loved ones or pay off a car loan. You decide on the specific amount of coverage you need. Your premiums will also be set for your chosen term, whether it is 5 years, 10 years or 20 years. Additional Differences in Mortgage Life & Term life insurance Mortgage life policies are easier to obtain, but the amount you have owing on your mortgage will determine your coverage and your beneficiary will automatically be your mortgage lender. If you select a term life insurance policy, you can decide exactly how much coverage to purchase and your beneficiary. Term life insurance is often used to pay for a car loan, offset a loss of income, pay a credit card balance or make mortgage payments. In addition, if your sell your existing home or change your mortgage to a new lender that offers better rates, you will have to apply and qualify for a new mortgage life insurance policy. On the other hand, term life insurance will continue if you keep your policy current. After you pay off your mortgage, you will no longer be covered if you purchased mortgage life insurance. However, you can decide if you wish to keep a term life insurance policy, even after you have completely paid your mortgage. If you are buying a new home, be sure to review your insurance needs. Consider your current financial and health status and your goals when deciding whether to purchase mortgage life insurance or term life insurance. You can often find a term life policy that offers more flexibility and coverage and lower annual premiums than a mortgage insurance policy. |
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