What Type of Insurance Do You Need? – Part 2 – Mortgage Life Insurance
The next type of insurance that you will encounter when obtaining a mortgage will be Mortgage Life Insurance. This is a life insurance policy that pays the remaining balance of your mortgage to your bank in the event that a person listed on the mortgage dies. Sometimes a disability option is also offered – if you were unable to make your mortgage payment due to an injury, your mortgage payment would be paid on your behalf by the insurance company and if you were diagnosed with a terminal illness, it will pay off your mortgage entirely. Some lenders also offer Mortgage Critical Illness insurance, offering the option of having your mortgage paid in full if you are diagnosed with a critical illness.
Mortgage Life, Disability and Critical Illness insurance are NOT a mandatory part of obtaining a mortgage. Some lenders, especially the major banks, offer mortgage life insurance as a pretty hard sell and they sometimes lead a client to believe they MUST take it in order to obtain the mortgage. This is not the case, however, it is usually in your best interest to be sure that SOME type of life and disability insurance is in place should something unfortunate occur. If you do not have anything else in place through your place of work or privately, mortgage insurance should be the bare minimum that anyone should have. The last thing anyone wants to have to worry about following a difficult situation such as an untimely death, is a mortgage payment. For the usually low, monthly premium of the insurance, you are afforded some piece of mind that the family home will be looked after and what becomes of it will be the decision of your loved ones as apposed to the bank.
Mortgage Life and Disability Insurance is also available from private companies that are not affiliated with a bank. For instance, at First Foundation, many of our lenders offer a life insurance policy but we also make available a policy from a non-bank provider as their premiums and policies are sometimes more competitive. Again, the choice of provider or whether to have a policy at all, is yours.
The other option in this regard would be term life insurance – this kind of policy would cover more than your mortgage payment but rather all the money your family may need in the event of your passing. Depending on your age, premiums for full life coverage may be more cost effective than mortgage life insurance.
In either case, although not mandatory, life and disability insurance are an important consideration when arranging your mortgage. Be sure to double check what you believe you have available to you from your employer as often, it’s not as much as you might think it is or the policy may have to be increased to cover your new mortgage.
In addition, feel free to contact one of our Mortgage Brokers to discuss in more detail, all of your insurance options, even if you already have a mortgage and it was not placed by our firm.
Be sure to check back next Friday when we take a look at the third type of insurance you will need when purchasing a home…Property Insurance.