Here are some things to consider before you buy mortgage insurance from a bank or lender.
Are your premiums fixed?
With mortgage insurance, everyone pays the same premium. Remember that your premium can also change when the mortgage renews.
With term life insurance, you may qualify for better rates if you’re a non-smoker or are healthy. With this protection, premiums stay fixed for the whole term, so it’s easier to budget and there are no surprises.
Has the bank approved you for coverage?
Your bank may decide if you qualify only after a claim is made. So, if they decide you don’t qualify for coverage at claim-filing time, you will have paid for insurance and received nothing in return.
Term life insurance is medically underwritten upfront, so you always know where you stand. There also may be no health exams to qualify.
Does your coverage retain its value throughout the term?
The bank's mortgage insurance benefit value declines as you pay down your mortgage. So, while you continue to pay the same price for mortgage insurance, it's actually worth less over time.
Traditional term life insurance policies keep their value throughout their term. They also usually do so with lower premiums.
Who is the beneficiary of your policy?
With mortgage insurance, the beneficiary of the death benefit is your bank or mortgage lender since they own the policy.
With term life insurance, you name your own beneficiary. That beneficiary can choose how to spend the death benefit. A portion of the death benefit can be used to pay off the mortgage, while the rest can fund college, health-care costs and living expenses.
What happens when you buy a new home?
Mortgage insurance is tied to your mortgage. If you buy another home or chose a different mortgage lender at renewal, you'll have to apply for mortgage insurance again.
A simple term life insurance policy is portable and continues to cover you, regardless of who you have your mortgage with.
Do you really need mortgage insurance?
If you already have life insurance, you may already have sufficient coverage for your mortgage. Only a proper needs analysis by a Licensed Insurance Advisor will determine that.
Your mortgage lender will not be able to determine this and will simply cover the full mortgage amount, which may mean unnecessary over-spending.
With term life insurance, you can consolidate all your insurance needs such as mortgage, income replacement at death, education, childcare, funeral expenses—into a single policy. This saves you money by avoiding multiple fees from multiple plans.
With the bank, you can only cover the mortgage and must buy different insurance policies for the rest of your needs.
There may be some circumstances where mortgage insurance is a better option than term life insurance. Mortgage insurance typically doesn’t have medical restrictions, so it’s a good option for people who wouldn’t qualify for term life insurance.
A Licensed Life Insurance Advisor at CAA can help advise you on what coverage makes the most sense for you, based on your protection needs and your financial goals. To reach Life & Living Benefits Advisor Jackson Yee, call 1-877-222-0060 x65008, email firstname.lastname@example.org or book an appointment online.