By Helen Burnett-Nichols
Do you need mortgage insurance? Would life insurance offer you the protection that goes beyond your mortgage? Find out the difference between these insurances and which is best for protecting your home and family.
Your home is probably your most important asset. How can you insure it, in case something happens to you? A few options are available to owners. You can :
obtain mortgage protection through a life insurance policy offered by an insurance company, or
Get mortgage insurance from a bank or mortgage lender.
Mortgage insurance or life insurance: How do they work?
Above all, know that life insurance is a great way to ensure that you and your family have mortgage protection.
Money from life insurance is usually paid directly to beneficiaries – not to the bank or mortgage lender. Your beneficiaries are the people you choose to receive this money after your death.
Life insurance policies provide a death benefit, such as term life insurance. This is the amount of money paid to your beneficiaries after your death. The exact sum depends on the contract you have chosen.
Term life insurance covers you for a set period (e.g., 10, 15, 20 or 30 years). The premium – the amount you pay each month or year to be insured – is usually quite low for the initial period.
If you die while covered by your life insurance policy, your beneficiaries will receive a tax-free death benefit. They can use it to pay off the mortgage or any other reason. This way, your loan is protected, and your family has funds to cover additional expenses that you have to pay.
Is term life insurance right for you?
A Sun Life Financial advisor can help you choose an insurance policy that suits your needs and address your concerns. It is now possible to consult most advisors by videoconference. Find an advisor today.
With mortgage insurance, the balance of your mortgage is paid off in the event of death, up to a certain amount.
The money is paid directly to the bank or lender to repay the loan you gave. There is no money to cover other costs, and you leave no money for your beneficiaries.
What is the difference between mortgage insurance and life insurance?
The main difference is that mortgage insurance only covers your mortgage balance. And the money goes straight to the bank or mortgage lender. Your beneficiaries, therefore, do not receive a death benefit.
On the other hand, life insurance offers more than protection for your mortgage. Here’s how it works: All life insurance contracts provide a tax-free sum (the death benefit) for the beneficiaries. This sum can cover more than the mortgage. Your heirs could therefore use the remaining money as they see fit. For example, to cover:
your other debts,
childcare costs,
funeral expenses and
other living expenses.
Before making your choice between life insurance and mortgage insurance, it is essential to keep the following distinctions in mind:
Who receives the money?
In the case of life insurance, you can designate the beneficiary of your choice.
In the case of mortgage insurance, the money is paid entirely into the bank.
Can you transfer your contract?
With life insurance, you keep your contract, even if you transfer your mortgage to another company. And you won’t have to submit any new applications or evidence of insurability.
Mortgage insurance does not automatically follow you if you change mortgage lenders. If you transfer your loan to another lender, you will need to prove that you are in good health.
Which offers the most flexibility?
With life insurance, beneficiaries have the flexibility to cover the mortgage balance and more after your death. As the policy owner, you choose the coverage you want for the duration. And that coverage doesn’t diminish unless you want it to.
