Mortgage Insurance vs. Term Insurance

You have an accepted offer on a house, your financing has been approved and the last thing you need to do, aside from moving in, is sign the mortgage commitment. While signing the commitment your broker is going to bring up mortgage insurance.

Mortgage Insurance

Mortgage insurance primary function is paying off the mortgage in the event the mortgage holder dies. How it works is you purchase a policy for the amount you owe on your home and if you die, the insurer pays off the mortgage lender. It also will help in times of critical illness or disability. The coverage is optional.

·        Will be offered from your brokers company (example: Invis offers iProtect) and/or the lender who finances your mortgage (example: Merix, MCAP, Street Capital).

·        Offers Life insurance, critical illness insurance and disability insurance.

·        Mortgage Insurance will be wrapped into your mortgage payment.

·        Premiums are calculated based on: age at time of application, initial mortgage balance at time of application. If you are a smoker the premium will increase.

Term Insurance

Term insurance is an insurance contract which will last for a set time period. If the insured were to die during the contract then the beneficiary would be paid out the amount of the term policy. The money can be used to pay off the mortgage however it is the beneficiary’s decision on what they would like to do with the proceeds.

·        Term insurance is offered at investment offices, insurance offices and actually right in our own office.

·        Offers term life insurance, critical Illness and disability insurance.

·        A medical may need to be done to be approved for term insurance.

·        You can decide on any amount you would like to be insured for and for how long.

·        The premium for the insurance is guaranteed to remain the same for the chosen term.

·        Term insurance can cover not only your mortgage, but anything you want. So rather then paying for insurance on your loans & line of credit, you can bundle it all together in one term policy.

Mortgage insurance and life insurance do serve the same purpose but there are differences between the two:

 

·        Mortgage insurance only insures the person(s) on the mortgage, where with term insurance you can insure anyone.

 

·        Mortgage insurance is convenient as it is set up through your lender or broker while doing the mortgage. With a term policy you will have to spend additional time setting it up.

 

·        Mortgage insurance is not portable if set up with the lender. Therefore if your term is up and if you decide to change lenders you will need to re-apply for mortgage insurance. Term insurance will remain with you no matter how many times you change lenders.

 

·        With mortgage insurance the payout is based on the mortgage amount owing at the time of death. A term policy stays the same throughout the term.

 

·        With mortgage insurance the bank is the beneficiary where with a term policy you can name your own beneficiary.

 

There are many factors you need to consider when choosing insurance. Everyone’s needs are different and it is worth looking in to all of the options available.