Your house is one of your most important investments, especially if you have a family, so it makes sense that you should do everything you can to protect it. Whether you’re buying a property or renewing an already existing mortgage, it’s important to take steps as early as now to make sure that an unexpected death or illness in the family will not leave your loved ones with the burden of paying off a large mortgage.
With a typical personal life insurance plan, your beneficiaries can use the payout for whatever purpose—whether it’s to pay off your mortgage, student loans, or even personal debts. But if you’re the type of person who has many liabilities—that is, you have many other loans on top of your mortgage—you’d want a separate insurance policy to cover your mortgage payments so your beneficiaries can use the payout from your personal insurance for those other obligations.
This is where mortgage life insurance comes in, and it has a simple enough definition—it’s coverage that’s designed to pay off your mortgage in the event of your demise. How it works is similar to that of personal insurance, with the major difference being the insurance money that would typically go to your family goes instead to the mortgage lender, who then applies it to your mortgage balance. This insurance plan helps ensure that your family isn’t left homeless if you suddenly die before you’ve fully paid off your mortgage.
There are many types of mortgage insurance you can qualify for:
- Single vs Joint – A single policy covers only a single individual, leaving your spouse with no coverage. A joint policy, on the other hand, covers both you and your partner. You can either sign up for the joint type or both of you may each apply for the single type; just make sure you discuss it with each other.
- Decreasing vs Level – Decreasing insurance means that your mortgage will decrease as you pay it off; thus, the amount of cover is also decreasing with each monthly payment. A level insurance will not decrease over time; this type will be beneficial for an interest-only mortgage.
The main benefit of having mortgage insurance as part of your financial plan is that it frees up the money you might get from your personal life insurance. As mentioned above, you might have other financial obligations to think of, such as college tuition fees for your kids or credit card loans. With mortgage insurance, your loved ones will have the freedom to use the funds from your other policies toward their other needs. It also ensures that your beneficiaries get to lead financially stress-free lives because they don’t have to worry about how to pay their other bills or whether they’d still be able to have a home.
The application process for mortgage insurance is typically easy. It’s fast and easy to arrange, and you’d only need to answer a few health-related questions as well as questions about your occupation, lifestyle, and hobbies.