Mortgage Insurance vs. Life Insurance: What meets your needs?

Which Needs are Covered by Mortgage Insurance and Life Insurance?

Purchasing a house or renewing a mortgage involves a lot of financial investment. Therefore, it is prudent to safeguard your investment through insurance.

Mortgage insurance is suitable for new homeowners who don’t want to leave their loved ones with financial obligations in case of sudden illness or death.

Personal life insurance serves a similar purpose but is not limited to servicing your mortgage. The cover aims to offer your beneficiaries money in the event of your death. This money can be put to whatever use by the beneficiaries, depending on their priorities. The flexibility of life insurance makes it more favourable to many individuals.
 

What is Mortgage Insurance?

The mortgage insurance is only availed to anyone who is a mortgage borrower and usually consists of life and critical insurance coverages that are tied to your mortgage balance. The money is supposed to either clear or pay a part of your mortgage in the event of your death or if you suffer a critical illness such as cancer or heart attack. The paid out amount is always subject to the mortgage balance you have. This can enable your family to remain in their house, even if the principal source of income that paid the mortgage is no longer available.

Mortgage insurance can be obtained at the bank during the mortgage application process. The application for mortgage insurance is straightforward; hence easier to qualify for a mortgage coverage than for individual life insurance. Since mortgage insurance is group insurance, the risk is dispersed across many people, resulting in reduced rates. There is also very little medical underwriting, perhaps a brief questionnaire, and this can create issues at time of claim when the mortgagee(s) are then medically underwritten.

If you have a mortgage, it will be beneficial to acquire separate insurance other than mortgage insurance to ensure that the money you will receive can be diversified into other use. For instance, the money you will get from personal life insurance can be diversified in taking care of other family financial responsibilities other than your mortgage. This ensures that you save your family from huge financial burdens.
 

What is Life Insurance?

Personal life insurance is a policy that provides a payout to your beneficiaries in the event of your death. The policy is fully under the homeowner’s control; hence once paid, the money can be put to whatever use seems better to the beneficiary. The beneficiary can use the money to settle school fees, credit cards, living expenses, etc.

Personal life insurance is available for a duration that is not tied to the lifetime of your mortgage. It is totally unrelated to your mortgage and will continue to exist even if you pay off your mortgage or transfer it to another finance company. The amount of mortgage insurance you have is connected to the diminishing account of your mortgage and will reduce over time; however, your life insurance policy will not be affected by the amount of your mortgage.
 

What Are the Main Differences between Mortgage Insurance and Life Insurance?

Mortgage insurance pays for the remaining balance on your loan, which diminishes as it is refinanced. On the other hand, personal life insurance usually remains the same and is unrelated to your mortgage.

Mortgage insurance obtained via a finance company is normally quick and simple, requiring only a few wellbeing questions to be answered.  The pitfall to this is at time of claim the finance company can medically underwrite you and can void the contract if there is a significant change in your health. Personal life insurance, on the other hand, usually takes longer and necessitates a thorough examination of your health records and results in less hassle when there is a claim.

When your home is paid off fully, the mortgage insurance coverage ends while personal life insurance continues to function irrespective of the status of your mortgage.