Choosing The Right Life Insurance Policy For You
Choosing the right policy depends on your circumstances, not only now but also in the future. It is important to weigh up your options before deciding.
Mortgage life insurance brings the peace of mind that if you die, your loved ones will own the roof over their heads, without any mortgage payments each month.
However, it wont provide anything extra towards living costs. So they could still be forced to sell their home if they cant afford all the other bills.
Making sure you have life cover that delivers a larger payout than just the mortgage could allow them to stay in the family home.
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Help Protect Your Loved Ones Your Home And Your Savings In Case Something Happens To You
Seventy-five percent of Canadian households say that they would have difficulty paying everyday living expenses like their mortgage if the primary breadwinner were to pass away.1 It doesnt have to be that way. Mortgage life insurance is a simple, convenient and affordable way to protect your familys future, with coverage that pays off the mortgage balance if the mortgage holder passes away.
The Benefits Of Mortgage Life Insurance
Mortgage life insurance isn’t always best, but it does have some advantages over a stand-alone policy.
- Itâs convenient because your insurance premiums are included with your regular mortgage payments.
- It can be cancelled at any time. If you cancel your coverage within the first 30 days, many financial institutions will refund any premiums you paid.
- If you re-finance your existing mortgage with your existing financial institution, youâre able to keep your coverage even if your health worsens.
- If you have a problem getting individual life insurance because you have a certain condition or illness, mortgage life insurance might be a good alternative.
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If Youre Unsure Talk To A Professional
- If you wish to place your insurance policy in trust, try to choose a policy that gives you the option to do so without an extra charge.
- Its important to take professional advice before doing so. It is very difficult to change or cancel a trust once its been created, so you need to be aware of all of the implications before making a commitment.
- Visit a site that offers unbiased help for contacting professionals, such as independent financial advisors , solicitors and more.
- Some Citizens Advice Bureaus also have volunteer IFAs as part of the Moneyplan scheme – check if your local bureau is taking part.
Protect what matters to you, like your loved ones and lifestyle, in case the unexpected happens.
Is Mortgage Life Insurance Worth It
Mortgage life insurance can be worth it if you have a large mortgage debt that you wouldnât want to pass on, and you canât qualify for other types of life insurance. Keep in mind that the premiums you pay will always stay the same while the payout of your mortgage will decrease as you pay it off. You can always speak to an insurance broker to find the type of insurance that best suits your needs.
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What Mortgage Life Insurance Covers
Mortgage life insurance, or mortgage protection insurance, refers to a set of life insurance products that are designed to pay your outstanding mortgage balance if you die. This coverage is often offered by your bank or mortgage lender, but you can also purchase it through unaffiliated insurers. Since so many parties offer mortgage life insurance, the structure and benefits can vary significantly.
Mortgage life insurance policies have a specified period of coverage, generally 15 or 30 years, and the death benefit can be structured in one of three ways:
- The death benefit may be fixed for the first few years of coverage, but then decreases at a specified rate over the life of the policy. This is meant to mimic the rate at which the mortgage is paid off.
- Mortgage principal: Some policies tie the death benefit to the outstanding mortgage principal. This will behave similarly to a decreasing death benefit but, if you pay off your mortgage faster or slower than expected, the policy will reflect that.
- Level: The death benefit will remain the same over the life of the policy. This may be ideal if you have an interest-only mortgage, since the principal remains the same.
What Is Mortgage Protection Insurance
As a new homeowner, you may have already gotten more than a few calls regarding mortgage protection insurance. So why do mortgage lenders insist on life insurance?
The main aim of mortgage protection is to make sure you can still pay off your mortgage if you are unable to work or no longer have a secure source of income. This insurance will make your mortgage payments until you can go back to work or until the payment period ends.
If your death occurs within the term of the policy, your beneficiaries get a death benefit. The insurance provider pays your lender the remaining balance.
The monthly payment costs vary based on the mortgage amount, your health, and your age.
MPI policies generally cover only the principal amount plus interest. The other additional fees, such as property taxes, homeowners insurance, and HOA payments, are up to you. To cover the extra payments, you can include a policy rider.
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Is Mortgage Protection The Same Thing As Life Insurance
Yes and no. Like life insurance, mortgage protection policies pay out a benefit when the policyholder dies, but the beneficiary is always the mortgage lender â not your family or some other beneficiary who you designate. It’s helpful to consider mortgage protection as a limited type of life insurance with more specific rules about who and how much is paid by the policy.
Whole Of Life Insurance Policies
These pay out no matter when you die, as long as you keep up with your premium payments.
Theyre often used to help towards a funeral or for Inheritance Tax planning.
However, theyre typically more expensive than shorter-term policies. Theres also a possibility that if you live longer than you expected, you could end up paying more in than youll get out.
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Where To Get Mortgage Life Insurance
You can buy mortgage life insurance through your mortgage lender, or through another insurance company or financial institution. Shop around to make sure youre getting the best insurance to meet your needs.
Your lender can’t force you to buy a product or service as a condition for getting another product or service from them. This is called coercive tied selling.
Term Life Insurance Policies
These run for a fixed period of time, known as the term of your policy, such as five, ten or 25 years. They only pay out if you die during the policy.
There are three kinds of term life policies.
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Are Coverage And Fees Affected By Whats Left Owing On A Mortgage
Mortgage protection insurance through a lending institution like a bank, trust company or credit union typically provides decreasing coverage to match the decreasing outstanding mortgage. However, the cost remains the same. You are paying the same amount of money for something that is going down in value, says Wouters. If a mortgage is renegotiated, renewed or moved to another mortgage provider, you may have to reapply for coverage, and the cost will go up because youre older and may not be as healthy as you once were.
Remember that in the early years of your mortgage, most of your mortgage payments go to interest charges. Youll need most of the coverage on renewal of the mortgage, says Wouters. Your age and health may drive the cost up more than the reduction in the amount of the outstanding mortgage at the time of renewal or change.
So, what happens with your payout if you die with a small amount left on the mortgage? For example, are you paying premiums on a $500K mortgage for 10 years, and your family is only paid out for whats left on the mortgage at the time of death?
If you name a beneficiary on the life insurance policy, then they pay off whatever is left on the mortgage and keep the rest to pay off other debts, or provide cash for other needs and an income stream.
How Mortgage Protection Insurance Works
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The promise of mortgage life insurance is simple and appealing when you die, your family can keep the house with its mortgage paid off. The reality is more complex. For many people, a normal term life insurance policy is a better option than mortgage life insurance.
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Life Insurance As A Landlord
If youre buying a home as an investor, or you already own a home and youre looking to rent it out, you may still need life insurance. This way, you can help cover the remaining balance in the unfortunate event you pass away. You might want to increase your life insurance cover to account for the higher mortgage liability should you refinance your investment property or portfolio. Please note that life insurance is not the same as landlord insurance, which refers to enhanced coverage for the structure of your home and your possessions .
How Is Personal Life Insurance Different
Personal life insurancepays money if you die while covered under the policy. With personal life insurance the homeowner typically owns the policy. Unlike mortgage life insurance benefits, this money can be used however your beneficiary or beneficiaries see fit.
For example, your family or other beneficiaries could use the proceeds to pay for post-secondary tuition, credit card debt, or other living expenses.Personal life insurance can be purchased for a termthat is unrelated to the length of your mortgage. Your personal life insurance policy isnt linked to your mortgage and wont end because your mortgage is paid off, or youve moved it to another financial institution. The amount of your mortgage life insurance is linked to the declining balance of your mortgage and will go down over time, while your personal life insurance coverage typically wont decrease.
Personal life insurance can work for you today and also be flexible to your changing needs. You may be able to make significant adjustments to a personal life insurance policy without heavy fees. Its possible your familys financial situation will change as you have children , and personal life insurance can more easily handle these new financial realities.
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What Happens To My Mortgage Life Insurance Policy If My Circumstances Change
Few people who take out a 25-year mortgage end up paying off the same loan a quarter of a century later.
You might, for example, be landed with a loan at a higher interest rate after your initial deal ends, or with a bigger mortgage after moving house. Equally, you might end up with a smaller mortgage if you downsize or make overpayments.
Suddenly, the mortgage life insurance policy that was perfect at the start might not stretch far enough. Or it may be more expensive than you need.
Either way, if your circumstances change, review whether you still have adequate cover. Check how much extra it would cost to cover a larger mortgage.
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With a smaller loan, you might even be able to get cheaper life cover, provided you are not significantly older and your health has not deteriorated.
The biggest issue comes if you take out a joint life insurance policy and then split up or get divorced.
In this case, it can be expensive or impossible to remove one person from the cover unless you paid for a policy that allowed for separation. If you cancel the policy and buy new cover, the premiums might cost more given that you will be older and your health may not be as good.
The issue can be avoided by taking out single policies at the start one for each person. This may only cost slightly more than a joint policy.
Buying A Home With A Partner
Life insurance is important to consider when buying a house as a couple. If youre buying your home with your partner, your mortgage repayments could be calculated on the basis of two salaries. If you or your partner died while your mortgage loan was still outstanding, would one of you alone be able to keep up the regular mortgage repayments?
Life insurance can help by paying out a cash sum if you die during the length of your policy, which can be used to help pay the remaining mortgage this is what mortgage life insurance usually refers to, meaning they can continue living in your family home without worrying about the mortgage.
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Mpi Vs Fha Mortgage Insurance
MPI also isnt the same thing as the mortgage insurance you pay on an FHA loan. When you take an FHA loan, you must pay both an upfront mortgage insurance premium and a monthly premium. Like PMI, FHA insurance payments protect the lender against default on mortgages. However, FHA mortgage insurance affords you no protection as the homeowner.
Regardless if your loan has PMI or FHA insurance, it can be a good idea to buy an MPI policy if you cant afford a traditional life insurance policy and want to ensure your home goes to your heirs. They will have the opportunity to take over the payment, but its not always easy to budget for a cost you arent expecting.
Finding An Accurate Quote Is A Challenge
When you buy a house, you may get offers from your lender and by mail for mortgage life insurance. But it can be hard to comparison shop on your own. You may find it challenging to get mortgage life insurance quotes online. Many insurers dont offer quotes online, making it difficult to compare policies without having to speak with someone directly.
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Can I Put A Mortgage Life Insurance Policy In Trust
Putting life insurance in trust transfers the ownership of the policy.
This makes sure that any payout does not form part of your estate after you die and so does not count towards the £325,000 threshold above which the estate becomes liable for inheritance tax.
This can help because while money from a life insurance policy escapes income and capital gains tax, it could potentially be hit by 40% inheritance tax. It also means the payout will not get delayed through probate.
Whether you should put a mortgage life insurance policy in trust may be driven by whether you take out a single or a joint policy.
As a couple, if you each buy single life policies, you could put them in trust for each other. So if one person dies, the survivor gets the payout and can clear the mortgage.
However, if you take out a joint mortgage life insurance policy with your spouse or civil partner, the insurance company will automatically pay the proceeds direct to the survivor.
There may be no need for a trust. Usually there is no inheritance tax on transfers between spouses and civil partners.
The biggest issue comes if you take out a joint life insurance policy and then split up
Do I Need Insurance To Cover My Mortgage
Life insurance is usually a must for any homeowner who still owes money on their mortgage. In fact, most mortgage lenders require you to take out a policy before they finalise the loan because if the worst should happen and the main earner passes away, earner passes away, their dependants might end up having the family home repossessed.
Mortgage life insurance ensures that your family will be able to keep up with the repayments and keep your home.
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Mortgage Protection Insurance Cost
How much a mortgage protection insurance policy may cost you depends on a few different factors. Insurance companies will examine the remaining balance of your mortgage loan and how much time is left in your loan term. As with a traditional life insurance policy, theyll also take your age, job and overall risk level into consideration. In general, though, you can expect to pay at least $50 a month for a bare-minimum MPI policy.
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How Much Does It Cost
The price of mortgage life insurance will depend largely on the amount youre covered for , the length of your policy and your age.
Your premiums will also be higher if youve had a history of medical conditions, have a hazardous occupation or take part in some extreme sports.
Its very common for mortgage advisors, brokers and banks to offer their own life insurance products or recommend policies from particular insurers. At no point are you tied to using them for your insurance. Comparing policies and prices from multiple insurers can help outline all your options.
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