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Mortgage Life Insurance

Mortgage life insurance

Mortgage life insurance is a form of insurance specifically designed to protect a repayment mortgage. If the policyholder were to die while the mortgage life insurance was in force, the policy would pay out a capital sum that will be just sufficient to repay the outstanding mortgage.

Mortgage life insurance is supposed to protect the borrower's ability to repay the mortgage for the lifetime of the mortgage. This is in contrast to Private mortgage insurance, which is meant to protect the lender against the risk of default on the part of the borrower.

The Mechanics

When the insurance commences, the value of the insurance coverage must equal the capital outstanding on the repayment mortgage and the policy’s termination date must be the same as the date scheduled for the final payment on the repayment mortgage. The insurance company then calculates the annual rate at which the insurance coverage should decrease in order to mirror the value of the capital outstanding on the repayment mortgage. Even if the client is behind on repayments, the insurance will normally adhere to its original schedule and will not keep up with the outstanding debt.

Some mortgage life insurance policies will also pay out if the policyholder is diagnosed with a terminal illness from which the policyholder is expected to die within 12 months of diagnosis. Insurance companies sometimes add other features into their mortgage life insurance policies to reflect conditions in their country’s domestic insurance market and their domestic tax regulations.

The Controversy

Creditor Mortgage Life Insurance is a financial product which declines in value as the borrower pays a higher premiums to the insurer. In almost ALL cases, Personal Life Insurance (whether term or permanent) offers the borrower a better level of protection for considerably smaller premiums (less money).

The biggest advantage of Personal Life Insurance over Creditor Mortgage Life Insurance is that Personal Life Insurance maintains the original insurance face value throughout the lifetime of the policy, vs Creditor Mortgage Life Insurance which promises to pay out an amount equal to the client’s outstanding mortgage debt at any point in time, which is a decreasing sum as the mortgage is paid down. Creditor Mortgage Life Insurance is extremely profitable for lenders and/or insurers and is not the best option for the borrowers.

In many cases the borrowers may feel pressured to buy the Creditor Mortgage Life Insurance from the bank or financial institution providing them the mortgage. In reality a Personal Insurance Policy is a much better choice for the borrower.

Finally, Mortgage Life Insurance is not required by law. It is up to the borrower whether he or she will opt to protect his or her property investment by an insurance product or not.

Because of the poor qualities of Creditor Mortgage Life Insurance, the product has been subject to sharp criticism by financial experts and by the media across North America for over a decade.

If a borrower has already purchased Creditor Mortgage Life Insurance, they should contact a registered Insurance Broker to provide a quote for the current mortgage balance. In most cases the personal Mortgage Insurance will be significantly less that they are already paying. Once the new insurance is in place, the borrow simply needs to notify the bank that provide them the mortgage and sold them their Creditor Mortgage Life Insurance to cancel the policy.

From Wikipedia, the free encyclopedia –

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