Should I Buy Mortgage Insurance or Personal Insurance?
5 Q&As to help clarify which insurance is right for you
Ensuring your family’s financial security is at the top of your priority list, therefore the last thing you want to do is leave them with debt – such as an unpaid mortgage. So when your mortgage lender offers mortgage insurance in the final stages of your deal, it sounds like the most responsible choice.
But is it the best choice?
Making a more informed decision about your insurance
An important consideration when shopping for insurance is that while it’s always wise to insure yourself and your belongings, some options are a better fit – and it pays (literally) to do your research.
Your mortgage lender will offer mortgage insurance because it’s their job. But before making your decision, it’s important to take a moment and consider all your options so you can best protect your family.
Mortgage Insurance versus Personal Insurance
Besides mortgage insurance, personal insurance also offers you the opportunity to protect your loved ones from an unpaid mortgage if the worst happens.
Here are five questions and answers to shed some light on what which insurance might work best for you:
1. Who owns the policy and who receives the payout?
With personal insurance coverage, you own the policy, and you get to dictate who receives the payout. Then, the person who receives the payout can choose how they can best put that money to use in their lives, whether that’s paying off their mortgage, servicing other debts, or distributing money to loved ones.
However, with mortgage insurance, the bank owns the coverage and receives the payout, leaving your family without the choice to do what’s best for them. Because the bank owns the insurance, it cannot be moved if you decide to change your lending institution. This makes it difficult to change loan institutions, even if another bank offers a better rate.
2. What does my coverage include?
With mortgage insurance, your coverage is limited to the repayment of your contract with your current mortgage lender. Though the premium remains the same throughout the repayment process, the payout effectively decreases as you pay off your mortgage.
Personal insurance coverage is much broader. Because it is not tied to your mortgage, the payout remains the same regardless of how much you’ve repaid. This means the further along you are on your mortgage repayment, the more money that will go to your family.
3. How much flexibility do I have with each insurance type?
Personal insurance coverage gives you the flexibility to cover yourself and your family the way you see fit, allowing you to make sure it offers the best possible coverage for your loved ones. This includes options like “Pick a Term” (which allows you to pick the length of coverage to match the term left on your mortgage), disability insurance, and more. This allows insurers to tailor and customize personal insurance to the client’s needs.
With mortgage insurance, it’s quite fixed, with little to no flexibility. Your lender will cover only the exact amount outstanding on your mortgage at any given time.
4. Is coverage guaranteed?
Mortgage insurance, unfortunately, is not guaranteed. Because you do not own the policy, your lender can change or cancel the insurance at any time.
Personal insurance coverage benefits and premiums are guaranteed for the life of the policy. And because you own the policy, only you can decide when, or if, your policy should be cancelled or changed.
5. What happens to my coverage once I pay off my mortgage?
Once you’ve paid off your mortgage, your coverage with mortgage insurance ends.
Because personal insurance coverage is not tied to your mortgage, your coverage continues until you decide to stop paying into it, or when a payout is issued. This allows you to adapt your coverage to meet your changing needs.
Who are you covering?
Insurance should be the safety net for your family, should the worst happen. It should make you feel more at ease, and more secure when looking toward the future.
At first glance, mortgage insurance seems to offer this security. It ensures your family won’t be left struggling with housing debt if you’re no longer there, and this feels like a solid lifeline to grab hold of.
But, while mortgage insurance may make you feel good about protecting your family, it’s rarely the best way of keeping your family safe on all sides. Because mortgage insurance is totally focused on your mortgage payment, it offers limited room for change, and as we all know, life needs flexibility – especially when it comes to family matters.
Consider all sides when considering which insurance is right for you
Unfortunately, mortgage insurance is not about you or your family – it’s about the mortgage and the lender. They are the ones who will receive the payout and they are the ones who own the policy, meaning they’re the priority – not your family.
For most home-owners, this is the last scenario they want. After all, it’s not the loan you want to protect – it’s your family.
For more information on mortgage insurance versus personal insurance, contact Bayview Financial today.