Why choose an individual insurance plan for your mortgage?

As far as mortgage protection is concerned, the default option that comes to mind is to go with the one suggested by the lender. After all, what could be easier than accepting the insurance offered by the same institution financing the purchase of your dream home?

But, is it always the best option?

Remember, there is also a second option available to you where you can purchase an individual mortgage protection plan from a licensed insurance broker. Our Trust Life insurance advisors highly recommend going for an individual insurance plan because of the following reasons.

An individual mortgage insurance plan is more flexible to your requirements

The mortgage insurance plan offered by the lender will respond primarily to their own demands. The benefits paid as a result of death, critical illness, or disability are automatically applied to the mortgage repayment.

Individual insurance, on the other hand, responds primarily to the needs of the policy holder. In the event of death, your designated beneficiaries receive the benefits mentioned in the plan. In case of disability or serious illness, the policy can also pay benefits. This is one of the many examples of its flexibility!

Also, since you are the owner of the individual mortgage insurance plan, you will continue to be insured even if you change your financial institution. Thus, you have the freedom of shopping around for a better rate of interest among other lenders.

An individual mortgage insurance plan also gives you the ability to change the duration of the policy within the first 5 years of the policy without submitting any proof of insurability, or to transform it into a permanent life insurance plan.

It gives you the scope to plan for estate planning

Since individual mortgage protection is typically obtained through an insurance broker, the entire process is done based on your needs. This could also give you an ideal opportunity to finalize your estate planning. You cannot do this when signing up for the plan suggested by the lender.

Your coverage stays the same as far as an individual mortgage plan is concerned

The loan insurance from the financial institution covers the balance of the mortgage at the time of death, while the individual insurance pays the amount mentioned in the policy instead.

In the first case, the insured amount decreases as you clear your mortgage payments. This means that you are paying a fixed rate for a decreasing amount of financial protection.

For example,

You have purchased a house worth $300,000. There is still a $150,000 mortgage left. If you die, the insurance you have purchased from the lender will cover the unpaid amount (which is $150,000) and you become debt-free.

An individual mortgage plan, on the other hand, would pay you the amount stipulated in the original contract. Meaning, if the coverage is for $300,000, it is going to pay $300,000 as death benefit.

Obtain significant savings

Unlike an individual policy, the loan insurance contract disappears the moment you change lender. When you renew your mortgage with a competitor, the insurance premium will be higher than what it was during the initial term. Your insurability is also not guaranteed in case you have health problems.

Also, when going with loan insurance, some financial institutions often inflate the interest rate assumed on the mortgage.

For example, instead of the 2.8% rate of interest offered, a higher rate of 3.8% is often applied. In 25 years, this can easily cost you over $ 10,000. Hence, we would strongly suggest you to talk to a financial advisor before choosing a mortgage protection plan.

At Trust Life, we have over 30 years of experience in providing insurance and investments advice. Get in touch with our financial advisors to know more about the benefits of an individual mortgage insurance plan.