Unless you’re purchasing a home with cash, you’re going to need some form of homeowner insurance. You have a few options available to you, and it’s important to know which one best suits your needs: mortgage insurance or term life insurance.
When you purchase a home or renew your mortgage, lenders will offer mortgage insurance. This is to ensure the mortgage gets paid in the event one of the mortgage holders dies. The problem is, it often isn’t the best deal when it comes to coverage. Term life insurance can provide you more peace of mind, flexibility and the best bang for your buck.
How are they paid out?
With mortgage insurance, the sole purpose is to pay off your mortgage in the event of death. This insurance is sold by financial institutions and the beneficiary is actually the lender itself. This means your family or beneficiaries don’t have access to the payout. This is a simple option because the cost is usually added onto monthly mortgage payments.
Term life insurance is sold by insurance companies. Rather than being solely for your mortgage, this would provide a lump-sum benefit to your beneficiaries in the event of your death. That means the money could be used to pay off the mortgage, cover debts, pay living expenses, etc. Since it’s not connected with your mortgage, it’s sold in lengths of time called terms. Term insurance is typically sold in 5 year increments from 10-30 years.
Which costs less?
The cost of mortgage or term life insurance depends greatly on when you access it. If you apply for term life insurance when you are younger and in good health, you’ll have access to the best rates and be locked in for the term you purchase. Mortgage insurance is dependent on your mortgage rates and changes over time as your mortgage renews. Limited medical questionnaires and exams on mortgage insurance regularly also result in higher rates.
What are the main differences?
Manulife Financial has a helpful list breaking down the main differences between mortgage insurance and term life insurance. They are summarized in the chart below.
Whichever route you choose, it’s important to be aware of the pros and cons so you can find what best suits your family’s needs.
Do you have mortgage insurance? Contact us today at ACN Financial Group to see if you might be able to save some money and provide a better long-term plan for you and your family.
