You’ve done it! Having just purchased your new dream home, you are eager to settle in and start making your house your home. While you are excited, you pause to consider what steps you need to take to protect your beautiful new home – you have insurance in case of fire or flooding. If something happens to you, what will happen to your mortgage?
The same question concerns many homeowners: Would your family be able to pay your mortgage if you weren’t there?
Your loved ones may be protected if you take out mortgage protection insurance during your death. Additionally, it may be a good option if you are not eligible for traditional life insurance or want additional protection.
Does your mortgage get protected by life insurance?
An insurance policy that pays off a mortgage if a borrower dies is called mortgage life insurance or mortgage protection insurance. This article uses the terms interchangeably.
Life insurance policies for mortgages are a bit different. Many banks and insurance companies offer this product. The mortgage’s term is essentially the term of the life insurance policy. Most term life insurance policies allow the policyholder to choose the beneficiaries. The lender is always the beneficiary in mortgage insurance and will receive the remaining mortgage balance.
You will only benefit indirectly through that. Their home is paid off rather than money.
A mortgage protection policy would pay off your mortgage balance if you owed $150 000 when you passed away. The policy will pay off that remaining mortgage. Now that the home is mortgage-free, your family will not be able to control how the money is spent (the insurer pays it directly to the lender).
Mortgage life insurance offers a declining payout, one of its downsides. Paying your mortgage monthly, you chip away at the balance over time. These factors reduce potential payouts. It is now possible to purchase a level death benefit so that the payout remains the same even if the mortgage debt dips below the coverage amount. The coverage you receive decreases with mortgage insurance, but the premiums you pay remain the same.
In what way does mortgage protection insurance work?
Depending on the amount of your mortgage, your mortgage insurance will cost more. Depending on your age, a $1000 policy will cost you between 10 cents and $1.65. You will, however, have a lower coverage amount because you will pay down your mortgage over time.
Do you need a quote? Compare mortgage protection insurance rates using the comparison tool at the top of this page.
In what ways does mortgage protection insurance protect you?
Several costs are associated with mortgage debts that can be covered by mortgage life insurance. Mortgage lenders are the beneficiaries, but the borrower’s family receives a paid-off home. Borrowers do not receive payouts unless they die while their mortgage is still owed.
Unlike traditional life insurance policies, mortgage protection insurance provides indirect protection for a family instead of making them the direct beneficiaries.
Here’s an example. Due to his chronic asthma, Michel from Ontario cannot get life insurance, but he wants to ensure his boyfriend can live with them if he passes away. Term life insurance is not an option for him so mortgage life insurance might be a good option.