Congratulations! You just bought the biggest purchase in your lifetime, which would be your home. Now you must be wondering what you can do to protect this investment. The answer to that would be insurance. But with so many advertisements and numbers complicating everything, isn’t there some way to find out which type of insurance should you get? We have detailed so key information to help you make the right choice for you!
Differences Between Mortgage Insurance and Term Insurance
There are some important differences to keep in mind when it comes to mortgage insurance and term insurance. Mortgage insurance will pay the balance if the person listed passes away. This is something to consider, since whoever will inherit your home won’t have that extra debt to pay off when you pass away. The last thing you want to do is leave that liability behind to your loved ones.
Mortgage insurance is sometimes referred to as creditors insurance. This insurance is offered by the bank and can be purchased when signing your papers. Usually, they ask you a few questions regarding your health. It’s important to stay as honest as possible when answering these questions as this could change the outcome of your future financial situations. However, this insurance comes at a cost.
One thing to remember about mortgage insurance is that even if you are paying the premiums, you may not always be covered. These policies use post-claim underwriting, meaning that the insurance company will look into your medical history after a claim is made. So if you have a health condition, whether you or your doctor know or not and it is not disclosed, this means your claim could be denied.
Another difference is, since mortgage insurance only pays out the balance of the mortgage if you die, the amount of coverage goes down each month as you are paying off the mortgage. You will also need to renew this policy every time you renew your mortgage. This could mean that your premium could go up, depending on your health issues at the time of renewal. And again, staying as honest as possible in these situations will benefit you as they can find out information regarding your health concerns.
Term insurance is insurance that covers you for a set number of years. Your premiums, and the amount your beneficiaries will get stay the same over that period of time. So whenever you die, your family receives the payout and decides what they want to do with that money.
Term insurance is much more portable. If you get decided to choose to get mortgage insurance instead of term insurance, if you were to switch lenders you would have to open a new policy. Term insurance is attached to you, and not the debt. So no matter the lender or the amount, you will never have to over complicate things!