When you get a mortgage for your home, for most people, chances are that this will be the largest piece of debt that you carry. Getting mortgage insurance in case you die can be important not only to hand down an asset to those who are beneficiaries of your estate but even more important to help protect your family in case you are gone.
If you die and want to leave your family an estate or inheritance, getting life insurance is a great way to do so in that this insurance can leave your family members with a home that has no mortgage and the option to either keep it or sell it for cash. To save up this amount of money out of your income could take a lifetime. Even more important though is the protection of your spouse or family. If one spouse dies, it can be very tramatic in a time of grief if the other spouse is forced to sell the family home if they can’t afford the mortgage. This is the case for both a working or non-working spouse. If you are the only working spouse in a family with children and your spouse dies, you will have extra expenses as you may need to pay for child care or for someone to look after your home. If you don’t work and rely on a working spouse who dies it, can be even worse as you may not have any income coming in to pay for the home or the financial strain could be very difficult even if you have a little money stored away.
In most cases it is a good idea to insure your mortgage for life insurance so let’s take a look at your three main options. First of all there is mortgage insurance offered by your lender. Second of all there is third party mortgage insurance and finally there is third party term insurance.
Mortgage insurance from your lender pays off the mortgage balance owing when you die and is payable to the lender. It will reduce as your mortgage reduces so you will lose some coverage over time but your mortgage will get paid off. The big down side to this type of insurance is that it is NOT portable from lender to lender. If you move your mortgage to a different lender you will have to apply for insurance again. You will now be older so the insurance will cost more and you may not qualify if you have developed any major health conditions. This is probably the worst type of insurance you can get and is something you should only get as a last resort.
Mortgage insurance from a third party is similar to lender mortgage insurance in that it will pay off the mortgage if you die. Your coverage also decreases as you pay down your mortgage. However, this type of insurance does have the benefit of being portable from one property to another so as long as you have a mortgage you will NOT lose coverage and you won’t need to apply again. This is a huge benefit and cost saver.
Term Insurance is a third type of insurance you can get. It is not tied to your mortgage but you can purchase enough insurance to cover your mortgage. Given it is a separate policy, you don’t have to worry about moving or paying down your mortgage. The premium will be set for whatever term you select (ie. 10, 20, 30 years). The longer you set it for though the higher the cost will be. The balance never decreases and you can select who you want the insurance payable to. The only downside to this type of insurance is that the cost can be higher than mortgage insurance.
We believe life insurance is important to protect your family home and your estate. If you have any questions on insurance please give us a call and we will be happy to help you or refer to to a professional insurance advisor.