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 Some homeowners get confused as to what mortgage life insurance is. They make the mistake of thinking that this type of insurance is the same as their home insurance. Or that it is part of property insurance. They are different.

What is a  Mortgage Life  Insurance Policy?

Mortgage life insurance is the common term that is used by the lending institutions. It is what those making the mortgage loan sometimes call it.  However, it is the same as creditor insurance. Plus, it is a form of financial protection. The mortgage insurance will pay out the balance of the mortgage.  If the mortgage holder passes away.The home is then free and clear of this debt. The benefactor of the home will not have to worry about paying for the home.

How is Mortgage Insurance Paid?

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Most often insurance purchases are through the Bank who is giving the mortgage. Sometimes it can be another form of lending institution. In most cases, they will have an Insurance Company lined up that will provide the insurance. The payments for the insurance will become part of the mortgage payment.

Is Mortgage Life Insurance Mandatory?

Again there can be some confusion here. Mortgage life insurance is not mandatory. It is optional. However, mortgage loan insurance can be mandatory. It depends on the amount of the down payment on the home.  If the down payments were less than 20% then the sale price of the home, the insurance is mandatory.  It’s referred to as mortgage default insurance. Some mortgage lenders may not lend the money if there is no mortgage life insurance in place.

How Much Does Mortgage Life Insurance Cost?

Mortgage default insurance can cost between 2.80% and 4:00 %. It’s based on the amount of the mortgage. It pertains to the mandatory insurance if it is necessary.

Voluntary Mortgage Insurance

The mortgage lender will most likely have insurance they will offer to the borrower. If mandatory mortgage life insurance is not required.

They will have obtained this through a third party like an Insurance Company. Every lending institution is different. Each of them will have their third party insurance providers. The insurance rates will depend on the provider.

In many cases, the premiums relate the age of the individual insuring the mortgage. It is life insurance. The age of the insured is going to become a factor.  However, once the insurance is approved, it can’t be canceled. At least not because the insured is growing old. The policy will be in effect for the duration of the mortgage. Some people only take their mortgage out for five years; some go for long-term like twenty years, for example.

If there are two people named on the mortgage quite often the insurance will cover both. However, there will be an increase in the premiums. For example, for the second person, the premiums may be 50% more. Again, it is all going to depend on the mandate of the insurance company offering the insurance. In many cases, once the insured reaches sixty-five the insurance coverage is automatically canceled. In other cases, it may be by the age of seventy.

What Are the Alternatives to Mortgage Life Insurance?

There are some that would rather go with term life insurance. As opposed to buying mortgage life insurance. There are some major differences between these two types of insurance. Term insurance has some extra options for additional coverage.

Is There a Downside to Mortgage Life Insurance?

There are usually pros and cons to every important matter. No doubt insurance is important. There can be some downsides to mortgage insurance. However, it depends on whether the insurance is actual mortgage life insurance. Or, is it another form of insurance like term insurance. Using it as a policy that is going to pay off the mortgage in the event of death.

Some of the downsides of mortgage life insurance will depend on who it ‘s purchased through.

a) The mortgage lender may offer mortgage life insurance. In this case, there is no negotiation on the premiums. For example, the insured may not know if there is any discount that could be available.

b) The mortgage value goes down. The insurance premiums do not. Assume someone has a mortgage for ten years. They make payments on this for the ten years. Each year the amount owing on the mortgage goes down. If the insured were to pass away only the amount left on the mortgage is paid out. There would not be anything left over to pay to the estate. So if the starting mortgage was $300,000. The insurance coverage is on this amount. The premiums are based on this amount owed. If the insured passed away and the mortgage balance was $250,000. This is all the insurance company would pay. Yet, the premiums had continued all along based on the value of the $300,000.

c) Quite often the cost of mortgage life insurance is higher. When compared to other types of insurance that could be used to cover the mortgage.

Is It Too Late To Change Or Obtain Insurance?

It is never too late to obtain insurance unless of course, one has reached an age restriction. Even if one had obtained the insurance when they got the mortgage, they could still cancel it. There are rules and regulations that the lending institutions must follow. It is in regards to the insurance offerings.

An individual has the option of canceling this insurance. They have the option of seeking out their Insurance provider. This way they can take advantage of whatever options may be available to them.

Shopping for Mortgage Life Insurance

There are different ways one can go about shopping for mortgage life insurance. It can begin by getting some quotes. It will help to narrow down which Insurance Companies are offering the best rates. Then the individual can ask further questions. Questions with respect to the different types of insurance. They can make an informed decision. It is better to know what the alternatives are that will serve the same purpose. Other forms of insurance like term insurance may be a far better option.

Resources

https://www.canada.ca/en/financial-consumer-agency/services/rights-responsibilities/rights-mortgages/rights-mortgage-life-insurance.html

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