Once you purchase your house, that will be your most valuable asset. That’s why you’ll need to protect it in case you pass away. In the insurance market, you can find different policies that have various coverage. However, it usually comes down to mortgage insurance vs life insurance. To help you decide between these two options, in this article, we will do a complete comparison of bank mortgage insurance vs life insurance.
The first thing you need to know is that this is not a homeowners policy. This means it will not protect your home in case of peril. To have that coverage, you’ll need to look for different policies. Instead, the main objective of this protection is taking care of your mortgage debts after you pass away. In most cases, people prefer life insurance since it offers more benefits compared to mortgage insurance. But, the right option for you will depend on your situation.
Keep in mind that if you are a business owner with an additional mortgage in a different property, you’ll need to get an extra policy to protect your company. Visit this website to learn about the type of life insurance that can cover your enterprise.
Now, before we take a look at the difference between mortgage insurance vs life insurance, you need to understand how a mortgage works.
Mortgage: What it is and How it works
As you might know by now, a mortgage is a type of loan you take out to cover the costs of purchasing a house. One of the conditions to get a mortgage is having enough money for the downpayment. This value will be determined depending on the purchasing price of the property. Once you have your mortgage, you’ll be able to sign the contract of your home and pay your debt every month.
In case you pass away, the proper insurance can help you cover your mortgage payments in different ways.
The difference between Mortgage Insurance vs Life Insurance
Mortgage insurance, also known as mortgage protection insurance, is meant to cover all the mortgage payments after you pass away. The coverage will only kick in if you still have some mortgage payments left. Otherwise, it won’t give money to your loved ones. However, in case you acquire the mortgage just a couple of years ago, the policy will prevent that your family loses the house.
Most homeowners consider that life insurance is a complete policy since it gives your family and friends access to a certain amount of tax-free money. With that fund, your family will be able to cover several expenses, including the mortgage payments. To make sure that the insurance protects your family, you need to name beneficiaries.
In this regard, there are two kinds of life insurance policies. Whole insurance lasts a lifetime, but the premiums are more expensive. The majority of people pick term life insurance since the monthly payments are affordable, it has a time limit, and offers a death benefit.
Before doing a whole comparison of bank mortgage vs life insurance, we will take a look at the similarities between these policies.
Similarities of these insurance policies
Overall the only thing that is similar between these two policies is how they are structured. Whether you want a mortgage or life insurance, you can shop around to get this coverage with several companies. Once you purchase it, you’ll have to pick the time limit. Then, the value of your premiums will be determined by the insurance company. Usually, these premiums are paid monthly, but depending on your provider you can work out an agreement. Also, no matter which one you choose, you will have a death benefit. This means that in case you pass away, your beneficiaries (friends or family) will receive a certain amount of money.
Now let’s take a look at the reasons why you might want to choose one policy over the other.
Bank mortgage insurance vs Life Insurance: A complete comparison
Whenever you purchase an insurance policy, you need to make sure you are considering all the following factors. Comparing these essential elements will help you determine which coverage is the best for you.
- The beneficiaries
When we refer to the beneficiaries of your policy, we are talking about the people that will receive the money after you pass away. In case you choose life insurance, you can list as beneficiaries any family members or friends. For mortgage insurance, the beneficiary will be the mortgage lender. This means they will get the full payout to cover your debt.
- Length of the coverage
If you purchase mortgage insurance, the length of the policy will be the same as the one for your mortgage. This means that in case your mortgage ends before you pass away, the coverage won’t work anymore. That is one of the reasons why people prefer life insurance because it can last between ten and 30 years. You can choose the length you want, and for as long as you pay the premiums, your family will have access to tax-free money to cover any liabilities.
- Price of the premium
In case you are looking for a policy that is affordable but still gives you proper coverage, term life insurance will be ideal for you. Remember that Life insurance is low cost since you are required to take several medical tests and answer different questions. On the other hand, with mortgage insurance, you don’t have to do any medical exams, but it has a cost. That exemption will reflect on higher premiums every month.
On average, the cost of the mortgage insurance will be 2.8 to 4 percent of your mortgage. For life insurance, the value of the policy will be $500 a year.
- Portability
The advantage of getting life insurance vs mortgage insurance is that you will have more flexibility. For instance, with the first policy, you can move the coverage to protect any home, and it doesn’t matter if you’ve changed from a mortgage lender. However, with mortgage insurance, the protection only covers one property as long as it has the same lender and terms.
Taking into account all of these factors, the only case in which it would be a good idea to get mortgage insurance is when you have a health condition that doesn’t allow you to get different coverage. Otherwise, life insurance is perfect since it will cover your debts and protect your family.
