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Do you currently have a mortgage? If so, have you ever stopped to consider what would happen if you pass away before your house is paid off? Who would be burdened with continuing the mortgage payments?
Rather than leave your loved ones to deal with your mortgage, an insurance policy can provide your family with the funds needed to fully repay your mortgage in the event of your untimely passing. And while a traditional life insurance policy can do that, there are other unique types of insurance that can take care of your mortgage, such as mortgage life insurance.
Let’s take a closer look at mortgage life insurance to help you determine if this is the right policy for you.
Also known as mortgage protection insurance, mortgage life insurance is a type of term life insurance that covers your mortgage completely if you pass away early in life. If this happens, the policy will repay the entire outstanding balance of your mortgage.
In this case, your lender is the beneficiary of the policy rather than your family members. Instead of a death benefit being passed on to your named beneficiaries, the proceeds of the policy go to the lender when you pass away. This is the main difference between mortgage life insurance and a typical life insurance policy.
That said, while your spouse/partner or children may not see any payout, they will not be left with any outstanding mortgage to continue paying.
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Mortgage life insurance is finite and expires after a certain period of time, much longer than a term life insurance policy. Most policies cover terms lengths that are in line with traditional mortgage amortization periods, for example, 15 to 30 years. Your policy’s value is tied to whatever is still outstanding on your home loan.
For instance, if you still owe $200,000 on your mortgage, then that’s how much your mortgage life insurance policy will be worth. As such, the coverage amount will decrease as you pay down your mortgage balance. The premiums, however, remain the same throughout the term of the policy.
If you pass away before the term expires, your lender will receive the death benefit which will be used to cover the remainder of the outstanding mortgage balance.
The cost of a mortgage life insurance policy will vary greatly from situation to situation. More specifically, your policy will be based on the following factors:
Mortgage life insurance covers the outstanding balance of your home loan, which decreases as the balance is paid off. A traditional life insurance policy, on the other hand, remains the same throughout the term of the policy and is not tied to your mortgage. Mortgage life insurance coverage expires when your mortgage is fully repaid.
Further, a mortgage life insurance policy pays out a death benefit to your lender when you pass away, while your named beneficiaries receive the death benefit with a traditional life insurance policy.
Learn more about permanent life insurance and universal life insurance.
A conventional home insurance policy provides financial coverage in the event that your home is damaged, or the contents within it are damaged, lost, or stolen. In this case, you will be compensated for any damages or losses according to your home insurance policy. This type of insurance does not pay out a benefit in the event of your passing.
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Coverage Amount | Age Range | Provinces Available | Medical Exam Needed | |
Policy Advisor | $25,000 – $5 million | 18 – 72 | Ontario | No |
If you are considering taking out a mortgage life insurance policy, consider the following factors before making your choice:
No. While mortgage life insurance pays off your entire mortgage in the event that you pass away, mortgage loan insurance does not. Instead, mortgage loan insurance protects the lender if you default on the loan.
If you already have a life insurance policy in place, then a mortgage life insurance policy is probably not needed. However, if you do not currently have life insurance, then a mortgage life insurance policy may be something worth considering.
If you are unable to qualify for a traditional life insurance policy or simply haven’t taken the time to take one out, then a mortgage protection policy might be the way to go. It will give you the peace of mind knowing that your loved ones will not be left with major mortgage payments if you pass away before your time.
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