08 Feb The importance of mortgage insurance vs life insurance
Many people getting a mortgage, especially for the first time, do not realize how important it is to get a mortgage insurance. Some may not even know it exists. It is our hope to clarify this aspect as it is a great form of protection.
For the majority of Canadians, a home is the largest investment they’ll ever make. Therefore it’s only natural that most people seek out insurance plans to protect their investment. But is mortgage insurance or life insurance the better option when safeguarding your home?
Don’t forget that a mortgage is a loan that you use to buy a home. When you sign a mortgage contract, you are signing a legal agreement to repay the loan, plus interest. Your home acts as security on that loan, and if you stop making payments, the mortgage lender can take possession of the property and eventually sell it.
Having said this Mortgage insurance is typically purchased from the bank or financial institution that’s lending you the money for your mortgage, and added on to your monthly payments. However, mortgage insurance is typically more expensive than life insurance – and while your premiums remain the same for the length of time that you’re insured, the potential pay out shrinks as you pay down your mortgage. Plus, each time you renew your mortgage or change lenders, you’ll need to renew your policy.
When investing in term life insurance, you’re protected for the duration of the policy. The amount of money that’s paid out to the beneficiary never changes, even as you pay down your mortgage. But, should you need to renew for another term, you could potentially pay higher premiums depending on your age and overall health. However, term life insurance rates are generally less expensive than mortgage insurance. In addition, your term life insurance policy stays with you for the duration of the policy, even if you sell your home, renew your mortgage, or change lenders. Typical term life insurance policies do require a medical exam in order to secure coverage, which can make the enrolment process more complex than applying for mortgage insurance.
There are several factors to consider when deciding to get insurance for your mortgage. Talk to us about these options as they essentially serve the same purpose with some important differences.