Term Life Insurance Vs. Mortgage Insurance – Why Term Life Insurance Is The Better Choice?
Whether it is your first mortgage or renewing an existing one, it is always sensible to have some form of life insurance to ensure your mortgage gets paid off in time, should you or your significant other passes away.
As far as your insurance decision is concerned, you typically have two options – Mortgage Insurance and a Term Life Insurance. Which one should you go for? Let us see.
Mortgage Insurance and Term Life Insurance – The Difference
In simpler words, Mortgage Insurance covers ONLY for your mortgage debt. It is essentially a Term Life Insurance plan, but is only meant for your mortgage, and nothing else. Some medical history questions would be asked during the application process, but you won’t have to go through a medical examination. The premium rate will be decided typically by your demographics and the value of your mortgage.
A Term Life Insurance is essentially a broader coverage, covering both your mortgage and other financial costs. It covers you for a set term period of 5, 15, 20, 30 years. There are medical questions and medical examination involved, and the premium rate typically depends on your health conditions, demographics, term length, and the coverage amount.
A term life insurance can be used to cover for your mortgage, debts, or even replace your salary in case of a mishap.
Why it is always sensible to opt for Term Life Insurance over Mortgage Insurance
When you buy term life insurance, you own the policy. In case of mortgage life insurance, the mortgage lender owns the policy.
You define the beneficiary of term life insurance. This means that you can also change the beneficiary. The lender is the only beneficiary in mortgage insurance and you cannot change that.
- Medical tests
With mortgage loan insurance, there is usually no testing, just a few simple questions. However, this can do you more harm than good in the long run.
Although you may think you have answered all the questions correctly to the best of your knowledge, you may have forgotten one incident when a doctor tested you for high blood pressure. If you have not mentioned it and it is found out later, your claim can easily be refused.
With mortgage insurance, the underwriting typically happens after the claim is presented, which means they can look for all kinds of reasons to deny the claim. Although there are medical tests with term life insurance, it is only for your benefit, to protect you in the event of a claim. Thanks to the testing, your coverage is secured for the entire length of the term.
- Policy renewal
If you’ve got a 20 or 30 years term life insurance policy, you don’t have to do anything but continue paying your monthly premiums. But you will need to renew your mortgage insurance each time you renew your mortgage.
The problem is, if you renew every 5 years, you are also older, which means you are more at risk and therefore will pay more premiums. With term life, your premiums stay the same for the duration of the term. And Term Life Insurance is always cheaper, the younger you are.
Term life insurance is transferable. You can change your mortgage lender, but your term life insurance is yours. Term life insurance isn’t just about protecting your home, you can use it for other purposes.
On the other hand, mortgage insurance is all about protecting your home, nothing more.
The amount of coverage you would receive decreases with mortgage insurance. Depending on your mortgage payments, your mortgage balance is lower, which means your payment is lower, even though you are paying the same premium.
With term life insurance, the death benefit remains the same throughout your tenure.
Mortgage insurance covers your mortgage. You can use term life insurance to cover anything you want, like funeral expenses, debt, income replacement, or your mortgage.
Mortgage insurance ends when the mortgage is paid off or if you choose to switch to a lender that offers a better rate. With term life insurance, you can extend your policy for a few more years or even choose to convert it to a permanent option like whole life or universal life policy.
Looking to cover your mortgage with the best and affordable options? Contact our experienced financial advisors for the best Life Insurance in Mississauga, Toronto, Brampton, Canada
At Trust Life and Investments, we are all about providing affordable insurance options for our customers in Canada. We have over 30 years of experience providing expert insurance and investment advice for both businesses and individuals.
Get in touch with us to know about the best and affordable custom Term Life Insurance plans in Brampton, Hamilton, Mississauga and Toronto. We make sure that you get total value for your money – minimum cost, maximum value at NO ADDITIONAL FEES! Let’s talk over a cup of coffee!