THUNDER BAY – You’ve just made the biggest purchase in your life; a new home for you and your family.  The bank or mortgage lender recommended you take the mortgage insurance to protect your investment if you should die.  Insurance is the answer to protect you, but is it the right kind of insurance?

How mortgage insurance protects you

Mortgage insurance which is most commonly sold by banks and mortgage lenders protects you by paying the balance of the mortgage if the person listed on the mortgage passes away.  A key item to consider here is that it pays the balance of your mortgage, so if you’ve paid the majority of it off it will cover what is left.  Since the coverage pays what is left on your mortgage, the amount of coverage declines every month as you pay down your balance.  Premiums for this coverage are included in your monthly mortgage payment and will be present throughout the term of your mortgage.  As you get older your premiums will rise while you’re getting less coverage.

The most important thing to remember about this coverage is that this coverage uses post-claim underwriting, which means that the insurance company will review your medical history after the claim is made.  If you have a health condition when you sign the forms, even if you and your doctor are not aware of it at the time, and it isn’t disclosed, your claim could be denied.

What term insurance can do for you

Term insurance can be purchased from insurance companies, and banks protect you by paying out a lump sum during the duration of the coverage. The coverage will stay the same throughout the policy, but the premiums can change depending on the term you agree too.

The key difference between term insurance and mortgage insurance is that the beneficiaries will receive a payout and they have the option of what they’d like to do with it instead of it just paying off the balance of the mortgage.  They may have other debts with higher interest rates they’d like to pay off first.  Term coverage also uses pre-claim underwriting which means you may need to provide a blood and urine sample upfront, and the insurance company may need to contact your doctor.  

Depending on your age and health, premiums for term and mortgage insurance are very similar thus making the decision comes down to which coverage you prefer rather than price.

The Bottom Line

Purchase the coverage that you prefer, and one that will protect your family and your assets.  Be sure to discuss your coverage with your financial advisor, and take into account the benefits to both when making your decision.  Feel free to contact me should you have any questions.

Anthony M. Talarico