Acquiring a home comes with many responsibilities, one of which is getting a mortgage, which is only the tip of the iceberg. Shielding your home and loved ones from everlasting hardships is equally important. That is the first incident that triggers mortgage life insurance. But, is mortgage life insurance indispensable? Let’s try to analyse it and uncover every aspect of it, as well as recommendations of Money Maestro experts about your other financial matters.
What is Mortgage Life Insurance?
A policy tailored for specific mortgages is called a mortgage life insurance policy. It offers more protection as it helps pay off the remaining balance loan if the insured dies unexpectedly. Your beneficiaries receive the payment in regular life insurance policies, while in case of a mortgage life policy the remainder of the outstanding home mortgage only is settled via bank.
Thus, your family, especially beneficiaries, will not suffer financial strains and will not lose the home.
What Comes Under Life Insurance and Mortgage Protection – the Distinction?
Let us distinguish these two: mortgage life insurance and life insurance cover used for mortgage protection.
- Mortgage Life Insurance: Insurance premium is also charged based on the loan outstanding balance, and it always covers up to mortgage principle outstanding only.
- Traditional Life Insurance for Mortgage Protection: This can be in the form of a term or whole life insurance policy that has an amount equivalent to your mortgage obligations (and possibly more). The family receives the death benefit and may use the funds at their discretion, offering them greater flexibility.
Money Maestro commonly suggests considering both alternatives given an individual’s financial objectives, age, health, and family situation.
Is Life Insurance Required for a Mortgage?
Some banks offer mortgages without mandatory insurance as security; however, some banks have made it mandatory to enrol for a group insurance plan to avoid future conflicts in conjunction with a mortgage. Insurance is a bank’s security feature, and it is decided by the bank’s internal product design team based on risk analysis factors.
Outlined below are some situations where having life insurance and mortgage protection is positively beneficial financially:
- You Have Dependents: As a head of the family, if your spouse or young ones are dependent on your income to take care of the mortgage, then a life insurance policy helps them to remain in the house without any financial hassle.
- You're Buying Property with a Partner: In case you are purchasing the property with a friend, brother, sibling, or even a spouse, if one of the partners dies, the survivor might find it challenging to single-handedly sustain the entire mortgage. Mortgage protection guarantees this does not happen.
- Your Home is Your Largest Asset: For most people, their home is the single biggest financial outlay they will ever make. Protecting it with life insurance is a smart move to maintain wealth and stability.
- You Want Peace of Mind: Eliminating the burden of a mortgage from a family member’s financial responsibilities could enable them to live their life without undertones of stress. Something like that could help bring peace of mind.
What Money Maestro Recommends?
In relation to this, Money Maestro recommends that every homeowner evaluate their specific circumstances in detail before deciding on a life mortgage insurance policy or a traditional insurance plan for mortgage protection.
Here is what our experts suggest:
- Check Your Existing Life Insurance Policy: Having calculated your coverage, ensure that it is sufficient to cover the balance of your mortgage in the case of your demise.
- Tailor Term Life Policies to Suit Your Needs: A term life policy taking the same duration as the mortgage, i.e. 20-30 years, is an affordable alternative for many clients. Unlike mortgage life insurance, clients can spend the payout for payment of expenses beyond mortgages, enabling flexibility.
- Balance Age and Health Factors: Mortgage life insurance is usually easier to qualify for. This is especially true for older clients or those with existing health issues. They tend to be more expensive over time, therefore, it is imperative to compare quotes for both policies.
- Don't Skip Policy Check-Ups: Your insurance needs may change as you pay down your mortgage or with an improvement in your financial situation. To avoid being overinsured or underinsured, review your coverage periodically.
Final Thoughts: Is Mortgage Life Insurance Worth It?
Do you require life insurance for a mortgage? Not particularly, but it can prove to be a smart decision. Whether you opt for a mortgage life insurance policy or a more flexible term life insurance policy, safeguarding your home should always be a top priority.
At Money Maestro, we aim to empower you with information to help you navigate the world of life insurance and mortgage protection, enabling your family’s finances to remain stable, regardless of what happens.
If you have any questions about which option is best for you, reach out to our advisors today. We will walk you through the entire process and help you select the coverage that meets your specific needs and objectives.
