If you are in the market to buy a home or already have a mortgage account, you are probably looking for ways to protect your loved ones from future mortgage debt, in the happening of any unfortunate event such as your death. Your loved ones or represents may face a lot of difficulties in this case if you have a property not covered properly. The most common and appropriate options are mortgage life policy and term insurance to protect your loved ones from future debt, in case of your absence.
What is a Term Life Insurance:-
A term life insurance is an insurance policy that you independently take out with an insurance company, with the approximation that a portion or all of the proceeds be utilized to yield off your mortgage. You name a beneficiary, usually your dependants, who are instructed to use the money to settle your mortgage account. Your beneficiaries can retain any leftover amounts.
Mortgage Life Insurance:-
A life policy on the mortgage is not tendered by an insurance company, but by banks and other fiscal institutions that hold your mortgage. The financial institution is the beneficiary, and the product is designed to have level premiums with decreasing death benefits. Usually a mortgage life insurance doesn’t require a medical exam.
Inconveniences of Mortgage Life Insurance:-
Life insurance along the mortgage decreases with time: The amount of cover decreases in parallel with the amount outstanding on your mortgage. However, your premiums remain level, and you end up paying more for less coverage over the years. Of course, the way it is designed, you don’t receive any benefits on it if you outlive the term. The bank retains any leftover amount.
A minimum stipulated time period to qualify for a payout: Usually, mortgage insurance doesn’t payout in the first six months of the policy. That exposes the mortgagor to a lot of risk.
If you wish to refinance, you need to take out a fresh mortgage policy if you decide to refinance, your existing mortgage life policy ceases, and you will have to take out a fresh policy. This can prove to be quite a bit of extra trouble.
Why Term Life Insurance is Superior:-
Term life is more affordable: Because the underwriting process in mortgage term life is not as precise as that of a term insurance policy, the premiums can be quite high for mortgage life insurance. Term life is generally more affordable, with its economical premiums.
Death benefits in term life go to the insured’s beneficiaries: When you use a term life policy to cover your mortgage dues, your beneficiaries are in total control of the money. If you die many years into your term policy, your mortgage dues would have gone down considerably, which means that your beneficiaries get to retain any leftover cash.
Term offers a choice of policy formats: While life insurance on mortgage has a decreasing term format, with term life you can opt for either decreasing term insurance or level term insurance. A decreasing term insurance policy will provide your beneficiaries with only enough money to clear your mortgage. A level term insurance policy on the other hand has a fixed death benefit amount, and therefore can be used to clear off more than just your mortgage amounts. For higher premiums you can also add more protection for other reasons, such as to replace your income, take care of your kids’ college fees, etc.
Doesn’t require a fresh policy if you decide to change as mentioned earlier, if you decide to refinance, your mortgage life policy ceases. However, with term, even if the underwriting process requires your mortgage documents, the life insurance cannot be revoked each time the structure of your finances change.
Make Sure You Are Covered Adequately:-
When you employ a term life policy to handle your mortgage, remember that you necessitate carrying out additional term insurance to handle your other financial debt instruments in the case of your demise. Look at riders such as critical illness and disability to cover every possibility. Life is uncertain. With the right mortgage life cover coupled with comprehensive life insurance planning, you can be sure that your loved ones are taken care of when you are no longer around to provide for them.