Mortgage life insurance or life insurance? Which to choose?

Mortgage life insurance provided by financial institutions

Also called reditor insurance, this coverage is provided by the bank that finances the purchase of the house, and you can get it in a jiffy. No need for a medical examination: you just have to answer a few questions before you receive a certificate indicating that the financial institution will repay the balance of your mortgage should you die. Although very simple to obtain, this insurance provides less flexibility, because first and foremost it meets the needs of the institution, which is the beneficiary. In most cases, the insurance premium remains the same, even if the balance owing on the mortgage decreases.

But if you decide to change financial institution to take advantage of a lower interest rate, you need to take out a new mortgage life insurance policy. The premium may rise because you are older or if your health has deteriorated.

Bear in mind that medical checks conducted after death may sometimes complicate settlement of the estate and may create anxiety for members of your family. Finally, this type of insurance should not be regarded as life insurance because it doesn’t cover loss of your income in the event of your death. Mortgage life insurance is a quick and convenient option, but term life insurance is often more flexible and less expensive.

These drawbacks show that ease is not always a winning choice when the time comes to deal with unexpected events.

Individual life insurance offered by insurance companies

Individual life insurance lets you alone determine the amount of coverage based on all your needs, including repayment of your debts and/or income replacement in case of death. You get to designate the beneficiary or beneficiaries. Plus, you decide how long you want the coverage to run and whether it should match the full mortgage period.

However, medical information is gathered at the time life insurance is purchased. Depending on the amount of coverage and your age, you will usually be asked to fill out a more elaborate health questionnaire and get a medical checkup before being accepted.

With an individual life insurance policy, you can switch financial institutions to take advantage of things like lower mortgage interest rates. You don’t have to worry about signing a new insurance contract with your new bank if your health has deteriorated. Among individual life insurance products, term life insurance is a winning option that guarantees financial security for your loved ones in the event of your death.

In the event of death, beneficiaries of individual life insurance policies receive a tax-free lump-sum benefit. This gives them more freedom to use it as they wish. With mortgage insurance, the balance of your loan goes directly to the bank.

Individual life insurance therefore remains a winning option for helping provide your loved ones with financial security in the event of your passing. The feeling of financial security can be bought, but not just anywhere or anyhow! Convenience isn’t necessarily the most important factor when it comes to dealing with the unexpected. Take the time to weigh the pros and cons before making your choice.