Your home, in most cases, is your biggest investment. To protect yourself, your spouse and your children, you can buy mortgage insurance. It is usually offered by the bank you have your mortgage with. However, using private insurance, offered by an insurance broker, will offer you more options on better terms. Usually, you will also save yourself some money. With private insurance, you and your family will benefit from much more protection. If you died yesterday, your family would need to replace your income for everyday needs, not only pay off the mortgage. In some cases, it might be more beneficial to continue paying the monthly mortgage payments, as money would be more needed in other areas.
When buying insurance, you should take your overall financial need into consideration, not just your mortgage.
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Mortgage Insurance With A Bank |
Personal Mortgage Insurance |
| • Bank Controls It • Bank Owns The Insurance • Money Goes To The Bank • You Have To Re-Qualify At An Older Age When You Move Your Mortgage • Ends When You Pay Off Your Mortgage*$250,000 mortgage – $ 61/month |
• You Control It • You Own The Insurance Money Goes To Your Family • You Have It No Matter Who Holds Your Mortgage • You Can Change It To Permanent Life Insurance Without Medical • Available Additional Benefits (e.g. Member Benefits) • Personal Service * John $500,000 – $27/month & Mary $500,000 – $21/month |
* bank mortgage insurance $61/month for $250,000 coverage vs. private $48/month for $1,000,000
*Sample rates (Mary age 37 non-smoker & John age 37 non-smoker)
Understanding the Differences: Life Insurance vs. Mortgage Insurance
- Mortgage Insurance (Creditor Insurance): This product is typically offered by lenders and designed to protect the lender in the event of the homeowner’s death or disability. The payout goes directly to the lender to cover the outstanding mortgage balance. The policy often decreases in value as the mortgage is paid down, and the premiums generally remain fixed regardless of the decreasing benefit.
- Life Insurance (Term or Permanent Life): This is a personal policy purchased by the individual. The payout goes directly to the designated beneficiaries, who can then use the funds for any purpose, including paying off the mortgage, covering living expenses, or investing for the future. The policy’s value remains constant (or grows, in the case of whole life) regardless of the mortgage balance.
Why Life Insurance is Often a Better Choice for Homeowners
- Beneficiary Control: With life insurance, the homeowner chooses who receives the payout. This allows beneficiaries to use the funds strategically, whether to pay off the mortgage, cover other debts, or provide for their family’s long-term financial needs. Mortgage insurance dictates that the payout goes directly to the lender.
- Coverage Flexibility: Life insurance can provide coverage for a longer term than a typical mortgage, and the coverage amount can be tailored to the individual’s overall financial needs, not just the mortgage balance. Mortgage insurance is tied directly to the mortgage term and decreasing balance.
- Portability: Life insurance policies are personal and portable. If a homeowner sells their current home and buys a new one, their existing life insurance policy can remain in force. Mortgage insurance, however, is often tied to a specific mortgage and lender, requiring a new policy when refinancing or moving.
- Cost-Effectiveness: In many cases, a comparable amount of life insurance can be more affordable than mortgage insurance, especially for healthier individuals. Premiums for mortgage insurance often don’t account for individual health factors as much as life insurance does.
- Estate Planning Tool: Life insurance can serve as a vital component of a comprehensive estate plan, providing liquidity to cover estate taxes, final expenses, and leaving a legacy. Mortgage insurance serves only one purpose: covering the mortgage.
Contact us for more information and to schedule ZOOMwithMario insurance and options review.
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