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Mortgage Insurance
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What is Mortgage Insurance?
Searching for an ideal house takes a lot of time and patience. Once you find an appropriate house, you have to undergo paperwork and have to make a down payment. You have to apply for a mortgage loan depending upon the amount you are paying as a down payment. As per Canadian government rule if you pay less than 20% of the down payment then you have to buy mortgage insurance.
Most of the time when you take a mortgage loan from lenders they suggest you take mortgage insurance. To get the best rate and to be on the safer side you opt for the option without exploring other available options. Initially, it seems right but with time you will realize that it was not the right option. There are different types of Mortgage plans available at different premium options. The Mortgage Insurance bought from lenders is not flexible and its premiums are quite high comparatively. Purchasing a Mortgage Insurance policy from an insurance broker can get you more flexible plans and at better rates.
Quick Comparison of Mortgage Insurance Bought from Lenders and Insurance Brokers
| Lenders | Insurance Brokers | |
|---|---|---|
| Coverage | Coverage will reduce as your mortgage pending amount decreases. | Coverage will remain irrespective of changes in mortgage due amount. |
| Portability | Not portable | You can continue the policy in case you switch banks or shift to a new home after paying a mortgage loan. |
| Benefit | The amount received in case of death of the insured person and spouse is the same as the mortgage amount. | The amount received in case of death of the policyholder and his/her partner is twice the payout. |
| Beneficiary | Bank will be the beneficiary. | You can choose the beneficiary. |
| Convertible | Cannot be converted into a permanent insurance policy. | Can be converted into a permanent insurance policy and enable you to avail benefits of a life insurance policy. |
A mortgage loan is required when you are purchasing a new property or want to refinance an existing property. Mortgage Insurance reduces the risk of lenders by ensuring payment of pending mortgage amount in case policyholders do not able to repay the mortgage loan because of some medical issue or because of death. There are different types of Mortgage Insurance available.
1. Mortgage Life Insurance
- Mortgage Life Insurance also called Mortgage Protection Insurance is a form of Life Insurance.
- The nominated person or beneficiary will receive a lump sum amount after your demise.
- The amount received will not be limited to the remaining mortgage amount.
- The compensation received will help your family in repaying the remaining mortgage loan and be financially stable.
- The preferable option is for those who have a family to support or have the responsibility of dependents on them.
- You can purchase this type of insurance from a lending institution or an insurance broker.
- Mortgage Life Insurance is available in both term and permanent life insurance options.
- You can go for a Term of 10, 20 or 30 years depending upon your need.
- If you opt for a permanent policy then the premium is evenly divided till the insurer is alive.
- You can earn cash value in a permanent policy.
- Coverage can be continued even after the mortgage is paid off.
2. Mortgage Disability and Critical Illness Insurance
- This type of Mortgage Insurance pays the remaining mortgage loan amount to the lender if you are not in a condition to repay the loan because of some type of disability or acute injury or critical illness.
- Mortgage Disability and Critical Illness Insurance is a combination of different insurance products i.e. Critical Illness Insurance, Life Insurance, Disability Insurance and Job Loss Insurance.
- The insurance provides coverage for a defined list of diseases and injuries that are covered and that are not covered by the policy.
- Along with that, there are a lot of conditions and clauses involved. Therefore, you must read and understand each condition very carefully.
- Pre-medical conditions are commonly not included in the coverage.
- Before opting for this type of insurance make sure you are already not covered by any insurance policy offering similar benefits.
- The premium will depend upon your mortgage loan amount and your age.
- You have to pay a monthly premium till the term of your mortgage loan.
- Can be purchased from your lender or any other insurance broker.
You must purchase an insurance policy from a trusted and reliable insurance broker in Canada. Before purchasing any plan do compare it with other available options and make an informed decision.
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