Mortgage Insurance vs. Life Insurance: What’s The Difference
For many, purchasing a home is the single most significant investment that they will make. So, it’s only natural that you would want to protect that investment and not leave your loved ones to carry the mortgage alone should anything happen to you. This is where most banks will get you. When signing up for your mortgage, you’re often solicited to buy an insurance product. Buyer beware here, as not all insurance policies are created equal. You may think that you’re getting a traditional life insurance policy but there are many differences between mortgage insurance and life insurance.
Difference #1 – Post-Claim Underwriting:
Products sold through the bank are not true life insurance products and are often not sold through an employee with the proper licensing or governed by regulatory bodies.
With that being said, the most important difference between a mortgage life insurance policy purchased from a bank and a traditional life insurance policy purchase through an insurance broker is post-claim underwriting. What does this mean for you? That your family may not be covered. Most traditional life insurance policies are underwritten prior to issue, while the policies that the bank offers are underwritten at time of death, meaning that it could be decided after a claim is made that you don’t qualify for the coverage and your family would receive no payout.
Difference #2 – Policy Value:
Your mortgage life insurance benefit value declines as you pay down your mortgage. So, while you may pay the same price (or more as your mortgage renews every 5 years) for your coverage, it’s actually worth less as your mortgage amount decreases. With traditional life insurance, you offer your family peace of mind by knowing that they are covered beyond the impact of your mortgage.
Difference #3 – Protecting Your Family
Losing a loved one is always tragic and tough to overcome, and the most common thread across all of our clients is that they want to protect their family’s financial well-being and give them time to grieve without worry. Some of the most prevalent concerns we hear are:
- Are they covered if I died and my family needed a way to replace my income to make ends meet?
- Are they covered if I died and my family needed to pay off the mortgage in full?
- Will I be leaving them with enough to cover my funeral costs?
- Will my family have the means to pay to cover tuition for my kids’ post-secondary education? What about new childcare expenses for the younger ones?
When purchasing a mortgage life insurance benefit, many of those concerns still remain. The only true way to ensure that your family is protected is to choose a product that allows your family to control the policy, the coverage amount and who receives the proceeds (the beneficiary) and direct the much-needed funds to where they see fit.
We can help – our team of licensed professionals will walk you through all of your options to find a solution that fits your needs and budget.