Mortgage Insurance vs. Life Insurance
By: Surex Insurance-Burlington
Should I Buy Mortgage Insurance or Life Insurance?
Mortgage and life insurance aren't mandatory, but when it comes to protecting one of your most valuable assets, insurance is a smart financial decision. On the surface, both coverage types pay off your mortgage should you die, so you can buy either one. However, you don't have to unpack much to see which is a far better product.
First, mortgage insurance is not CMHC insurance. CMHC insures high ratio borrowers against defaulting on their mortgage. If you put down less than 20% on your new home, you will need CMHC insurance.
With that out of the way, here's a quick breakdown of mortgage vs. life insurance.
Mortgage insurance is a product created by financial institutions. You pay a monthly premium, based on the amount you're borrowing, for the period you have your mortgage with the lender. Should you pass away, the bank will pay off the outstanding mortgage.
Life insurance is a product not associated with your house. You can buy life insurance online or from a broker for a term specified by you (5, 10, 20 years, or your whole life). Your premiums will vary based on your demographics, health, and how much money you'd like paid out after your passing. You can use it to pay off outstanding debts, credit cards, funeral expenses, and a mortgage.
Here are 5 reasons why you should buy life insurance and not mortgage insurance.
Mortgage insurance value decreases alongside your overall mortgage. Every time you make a mortgage payment, you owe less, and therefore your payout is also less. However, your monthly premiums stay the same regardless of the balance remaining on the mortgage. Your premiums are calculated on the amount you initially borrowed. On the other hand, life insurance premiums remain the same, as does the payout.
If you have a five-year mortgage, your mortgage insurance stops when the mortgage is paid, or if you choose to move to a new lender. With a five-year term life insurance policy, you can opt to renew, or extend your term life policy by adding more years. You could also convert it into a whole life insurance policy.
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