Your biggest debts are your greatest financial risks. But there is a way to lower the risk of what is likely your largest debt-your mortgage.
Protecting your mortgage debt with insurance can help ensure that your family will be able to keep their home if you die. You have two options for mortgage debt protection: mortgage insurance from your mortgage lender or individually-owned life insurance.
More Control over your Mortgage Protection
Your biggest debts are your greatest financial risks. But there is a way to lower the risk of what is likely your largest debt-your mortgage.
Protecting your mortgage debt with insurance can help ensure that your family will be able to keep their home if you die. You have two options for mortgage debt protection: mortgage insurance from your mortgage lender or individually-owned life insurance.
Mortgage Insurance
This insurance covers only your mortgage balance. Even though your mortgage debt reduces over time, your premiums remain level. If you die, only the outstanding balance on your mortgage is paid off.
The mortgage lender is automatically the beneficiary. If you move your mortgage to another company, you may lose your existing mortgage insurance and may have to re-qualify for new mortgage insurance.
You lose all your coverage when your mortgage is:
Repaid
Assumed, or
In default.
In addition, you have no flexibility to change your coverage as your needs change.
Life Insurance
You can choose from different types of insurance (i.e. term or permanent) with a death benefit that covers more than just your mortgage.
Your coverage amount does not decrease over time unless you select to have it changed.
If you die, the death benefit is paid to your beneficiary who can use it as they see fit, not just pay off the mortgage. You name the beneficiary. If you move your mortgage to another company, you keep your existing insurance, so you don’t have to re-qualify.
Your coverage remains in place even if your mortgage is:
Repaid
Assumed, or
In default
If you’ve decided you need coverage only until your mortgage is repaid but you later realize that you require coverage for other needs, you can convert your insurance to a permanent plan.
Here is a great documentry CBC did on the difference between the two.
http://www.youtube.com/watch?v=qe61HVGIwUo
Michael (Mike) Jodouin, CFP, CIM, FMA
