Term Life Or Mortgage Insurance?

By Author: Anne Arcel
Total Articles: 1
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Almost every lender will suggest a borrower get some sort of insurance when you borrow money for a house. That’s directly or indirectly in your interest. You have to keep in mind that the type of insurance they suggest may not be the best in your situation. For example maybe just supplementing your term life policy may be a better idea than getting a mortgage insurance policy and it may even cost less.
Few things about mortgage life insurance
This type of insurance would pay off your mortgage if you were to pass away. Creditors usually require this as a guanrantee that they get paid even in the eventuality that you pass away. Almost all insurance companies in Canada offer this type of insurance.
So can you use a Term life policy for the above ?

Yes you can, come to think of it if you pass away the term life policy will pay your family money which they could use to pay off the mortgage.

A comparison
Here is something interesting: of course this all depends on your age, health and medical condition. You could pay a lot less if you get a Term life insurance policy instead of a mortgage life ...
... insurance. Take a look at these price comparisons for $250,000 coverage:
For a couple aged Monthly mortgage insurance premium Term 10 monthly life premium
30 $36.00 $23.86
35 $52.00 $24.09
40 $80.00 $31.36
45 $116.00 $43.63

* Based on the information available in March 2011 from the websites of two major Canadian banks.

There is probably a lot more completion for Term life policies which explains why the rates are better if you get a Term life policy vs a mortgage life policy.
A term life insurance policy will also give you more coverage and is more flexible than a mortgage life insurance policy:
When a claim is made on a mortgage life policy the claim is paid to the bank or institution that issues the mortgage, the policyholder really has no choice. Whereas if it were a term life policy, the claim is paid to the family who could decide whats in the best interest. They might use the money for something more urgent and keep making mortgage payments.

Mortgage insurance policies usually have a reducing balance what that means is that as you pay down the mortgage the policy only covers the remaining balance. Term life policies are fixed coverage for the life of the policy.

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