The simple answer is, YES! Mortgage and life insurance are two beneficial, but two very different products. If you’re simply concerned with the balance of your mortgage being paid off if you prematurely pass away, mortgage insurance can be a great option. However, if you’re looking for control, flexibility and portability, life insurance may be a better option for you.
As provided by Wawanesa, the below comparison provides a better look at the differences between life and mortgage insurance:
|Life Insurance||Mortgage Insurance|
|Type of Insurance?||Term or Permanent||Decreasing term|
|Beneficiary?||Anyone you name||The mortgage lender|
|Where does the benefit go?||Beneficiaries decide (investments, mortgage, etc…)||Pays off only the remaining mortgage balance|
|Payment Frequency?||Monthly, semi-annually or annually||With mortgage payment|
|Covers which needs?||Can cover all insurance needs with one policy||Only covers the mortgage|
While both life and mortgage insurance provide a set payment, mortgage insurance will only cover the balance of your mortgage when you pass away. This means that although you pay the same amount each month, your benefit amount is constantly decreasing over time, while with life insurance your benefit amount remains the same. Let’s look at two scenarios, Bob and Betty, who each took a different path to protect their investment:
Bob purchases a home with a $500,000 mortgage. His lender offers him mortgage protection for an additional $30/month and Bob accepts. Bob unfortunately passes away 15 years later, with $200,000 left on the mortgage. The mortgage protection insurance pays off the remaining $200,000 and Bob’s family is not left having to resume the mortgage payments.
Seems pretty good, doesn’t it? Sure, but there is a better option. Check out which route Betty took:
Betty purchases a home with a $500,000 mortgage. She consults with her broker and decides to purchase a $500,000 term life insurance policy for $30/month. Betty unfortunately passes away 15 years later, with $200,000 left on the mortgage. The life insurance company provides her beneficiary with a cheque for $500,000, which is tax-free. Her beneficiary pays the remaining $200,000 on the mortgage, covers Betty’s funeral costs and uses the rest of the benefit to cover bills while taking time off to grieve and invest in their future.
Which option would you choose?
Purchasing a home is a big decision. You invest time finding the right neighborhood and right space for you and your loved ones to call home. The decision on how to protect such a special investment should be just as important. Contact your trusted Ravenhill broker today to review your current unique needs—we’re always happy to help!
Posted By Elizabeth