Do I need mortgage Insurance?

Updated: Mar 5, 2021

Actually, a better question may be…what is mortgage Insurance?

Buying a new home is very exciting but it can also be a very stressful experience.

There are many choices to make and it can get confusing. Contrary to popular belief, mortgage Insurance is NOT just one product and in order to protect your loved ones and your investment, it’s important to know exactly what coverage you do and don’t have.

Mortgage default insurance is the coverage a buyer is required to purchase if the down payment for the property is less than 20% of the purchase price. A common

misconception is that this Insurance is in place to protect you, the buyer. That is not the case. Mortgage default Insurance is required to protect the lender (financial institution) in these high debt to asset ratio mortgage scenarios. Although you, the home buyer, are the one paying the premium for this Insurance coverage, the coverage guarantees the lender that it will not lose money on this high ratio mortgage, if you default on your mortgage payments. When you have more “skin in the game,” by putting down more than a 20% down payment, you are considered less of a risk and therefore are not required to purchase mortgage default Insurance.

Mortgage Life Insurance is what you need to protect your family and your investment if a tragic event results in the passing of a homeowner.  This type of Insurance provides a tax free, lump sum payout that will cover all or a portion of the outstanding mortgage on your property.  Lenders will often insist on Life Insurance coverage when you apply for, or renew a mortgage and they will try and sell you their own product. However, you do not have to purchase Life Insurance from your lender and in fact, there are several reasons why it’s beneficial to purchase term Life Insurance from an Insurance professional like iClick Financial Services.

For starters, if you purchase Life Insurance that is tied to your mortgage, the proceeds of the Life Insurance claim get paid to the lender, not to a beneficiary selected by you.  Also, bank offered Life Insurance is a "decreasing" term Insurance policy where the coverage amount decreases as you pay down your mortgage, but the premium/monthly cost doesn't decrease. Additionally, Life Insurance through your lender is tied to that lender, and if you decide to move your mortgage to another financial institution you will have to reapply for coverage and your premiums will be based on your current age and

health status.

It is always good advice to decline the bank offered Life Insurance and instead arrange a flat term Life Insurance product where the premiums are fixed for the entire term of the policy, the coverage amount doesn't decrease over time and the proceeds are paid out to a beneficiary of your choosing.  This guarantees that, in the event of a claim, your beneficiary has the freedom to decide how to use the Life Insurance payout that you purchased.

Whether you are a new home buyer or already own property, it is never too late to purchase a Life Insurance policy that can be used to cover the risk associated with the loss of life. We offer Life Insurance with no medical exam and no sales calls. Apply now.

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