When we complete the paperwork and buy the home we love, we usually “own” the home loan. During this process, we inevitably run into the issue of Mortgage Protection Insurance, or Mortgage Life Insurance. What exactly is this insurance? What does it do? How does it differ from traditional term life insurance? Is it mandatory by law? What are the options available to us?
What home loan insurance is and is not
Usually when we buy a home, or after we buy a home, the borrowing bank or financial institution will offer to purchase home loan insurance. If we have just bought a home or have just done Refinance, we may also have had the experience of receiving a large number of home loan insurance advertisements in our mailbox. Before we make a decision to buy it, we need to understand what it really is.
Mortgage protection insurance, abbreviated as MPI, is an application of term life insurance.
It, simply, provides coverage for the monthly mortgage payments due on your home. In the unfortunate event of your death, the death benefit guarantees continued payment of the mortgage so that the family does not have to sell the home and lose their place to live.
The beneficiary of this common type of policy is the financial institution that lent the money, and when you die, the financial institution will receive a claim from the insurance company. Home loan insurance is generally considered to be more biased toward protecting the financial institution that borrowed the money.
What is the difference between home loan insurance MPI and PMI when buying a home
Home loan insurance MPI is completely different from PMI (Private Mortgage Insurance) for buying a home.
PMI insurance is required by the person who lent us the money in order to cover the risk when we cannot afford to make the down payment (usually 20%) on a home purchase.
Home Loan Insurance MPI, on the other hand, addresses the question of whether we will be able to continue paying our mortgage each month after we lose our earning capacity.
Therefore, home loan insurance MPI is not, and is not included in the PMI (Private Mortgage Life Insurance) when you buy a home.
Is home loan insurance required by law?
No, it is not.
What is the difference between home loan insurance and term life insurance?
Home loan insurance is an application of term life insurance, which is a “consumer product” and operates under the same mechanism.
When we purchase both types of insurance, we choose how many years we want to be covered and then pay a monthly premium that is paid to the beneficiary in the event of a “trigger condition”.
However, there are significant differences between mortgage insurance and term life insurance.
A mortgage insurance policy covers “loans” and the claim can only be used to pay off the mortgage on a specified home. A term life insurance policy covers all your potential risks, and the benefits are discretionary and can be used to cover, but not limited to, mortgage repayments, as well as repayments on other properties.
The beneficiary of home loan insurance is the financial institution that lent the money, while the beneficiary of term life insurance is determined by us.
Home loan insurance is usually a decreasing face amount term life policy, while term life insurance coverage can remain flat.
Home loan insurance is usually more expensive than a term life policy because home loan insurance is usually issued without a medical exam and is guaranteed. Term life insurance, on the other hand, may require a medical examination and may be denied if the health condition is not up to par.
Should we buy home loan insurance or term life insurance?
For most families buying a home, term life insurance is a better choice than home loan insurance. The reason.
Term life insurance provides coverage for more than just a home loan Your beneficiaries can use the payout to pay for their children’s tuition, living expenses, etc. Overall, term life insurance offers greater flexibility.
We can choose the size of the policy Home loan insurance covers the financial institution’s share of the risk, so the amount of coverage for this type of policy is strictly limited to the amount of the loan.
We can choose the length of time the policy covers Home loan insurance is usually 15 or 30 years, in sync with the loan, whereas the length of a term life policy is up to us.
Cost savings Home loan insurance is usually more expensive than a traditional term life policy.
When to choose home loan insurance?
Home loan insurance may be a worthwhile option in some special circumstances.
Because home loan insurance is often considered a no medical exam, guaranteed issue term life policy product, if we are in poor health ourselves, have a number of medical and disease records, and at the same time, have difficulty passing the insurance company’s medical medical underwriting standards. Then it makes sense to choose home loan insurance.