How Does It Differ From Lenders Mortgage Insurance
Mortgage protection insurance is often confused with lenders mortgage insurance , which is completely different.
First, mortgage protection insurance insures you as the borrower of the loan in your mortgage. Lenders mortgage insurance, on the other hand, insures the lender. Mortgage protection insurance is also designed to protect you if youre unable to pay your mortgage repayments, while lenders mortgage insurance is designed to protect your lender if you default on your loan or become unable to pay it back.
Second, mortgage protection insurance is often extra cover that you get to protect yourself and your family. LMI, on the other hand, is insurance that you pay for as security to your lender to protect them from such events. LMI is typically added on top of your home loan, whereas mortgage protection insurance is a separate expense.
Third, LMI is often arranged by the lender to protect themselves if you default on your home or property loan. Mortgage protection insurance, meanwhile, is something that you arrange as the borrower of the loan.
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Why You Dont Need Mortgage Life Insurance
Pamela Rodriguez is a Certified Financial Planner®, Series 7 and 66 license holder, with 10 years of experience in Financial Planning and Retirement Planning. She is the founder and CEO of Fulfilled Finances LLC, the Social Security Presenter for AARP, and the Treasurer for the Financial Planning Association of NorCal.
So you’ve closed on your mortgage. Congratulations! You’re now a homeowner. This is one of the biggest investments you’ll make in your life. And because of the time and money you’ve invested, it’s also one of the most important steps you’ll take in your lifetime. As such, you’ll want to make sure that your dependents are covered in case you die before you pay off your mortgage. One option you have available to you is mortgage life insurance. But do you really need this product? Keep reading to find out more about mortgage life insurance and why it may be an unnecessary expense.
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Mortgage Life Insurance For Homeowners With Medical Issues
If you go through the process of applying for a mortgage, you may be offered mortgage life insurance by your lender or its partner companies. While it isn’t mandatory, mortgage life insurance offers enough coverage to pay off your mortgage so your family will not have to move if you pass away.
Find and Compare Mortgage Life Insurance Providers
If you are interested in getting life insurance to cover your mortgage, whether mortgage life insurance is the right policy for you depends primarily on your health. Young homeowners with limited medical issues will get better quotes and greater coverage options with term life insurance. On the other hand, if you have severe health problems and won’t qualify for term life insurance, then mortgage life insurance will offer larger death benefits than many alternatives.
What Happens To My Policy If I Change My Mortgage
If you are changing your mortgage there are a number of things to consider, depending on whether you are topping up or extending your mortgage, switching or paying the mortgage off early.
Topping up your mortgage
If you are topping up your mortgage, you will need to make sure that your policy meets the new value of your mortgage.
- You could get a new mortgage protection policy for the total amount of your new mortgage, or just for the top-up amount.
- Compare the costs and benefits of both options. It may be cheaper to keep your original mortgage protection policy and then buy a second policy for the top-up amount. Check the cost of cancelling the original policy and replacing it with a policy for the full amount of your new mortgage.
- Whether you are topping up your mortgage or extending the term and need to get a new policy, you may find that your premium is higher than the last time you took out cover. This is because you are older and your age affects your premium. However, if you have given up smoking, or if rates have come down since the last time you applied for cover, you may be able to get cheaper cover.
Switching your mortgage
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What Factors Should I Consider
Like with other forms of life insurance, there are several factors you should consider before getting mortgage protection insurance. Many of these are also the same factors that insurance providers use to evaluate your application and create conditions for your policies.
- Age The number of employable years you have remaining can predict how much income youll receive over your lifetime. It can also influence the price of your insurance premiums.
- Health The fewer medical conditions you have that require financial resources, the better your premium structure will be.
- Occupation If you hold an occupation thats considered high-risk or hazardous, then you may have to pay higher premiums to make up for the higher risk.
- Family Structure Bigger families usually mean more financial commitments, which could affect your ability to make mortgage repayments if something happens to you.
- Financial Stability Your amount of savings and liabilities can provide a picture of how much mortgage protection insurance you might need if you die, become disabled, or lose your job.
- Monthly Income This can affect how high your monthly premium will be and how much your mortgage protection insurance can cover.
- Amount of Mortgage Left The larger your mortgage loan remaining, the more mortgage protection insurance youll often need.
What Happens To Home Loan If Owner Dies Singapore
Under the HPS, if the mortgagor passes away, the CPF Board will settle the outstanding housing loan up to the insured sum, with HDB or the bank which provided the housing loan, directly. The HPS is compulsory for all individuals who use their savings from their CPF account to pay for their HDB flat.
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What Are The 3 Types Of Life Assurance
There are three main types of permanent life insurance: whole, universal, and variable.
- Whole life insurance. This type of permanent life insurance has a premium that stays the same throughout the life of the policy. …
- Universal life insurance. Universal life coverage goes one step further. …
- Variable life insurance.
Benefits Of Using Mortgage Protection Insurance
Your property is one of your most essential and expensive assets, and mortgage protection insurance can provide it with a layer of safety. Homeowners can reap several benefits through mortgage protection insurance.
Earmarked Money for Mortgage
A mortgage is perhaps the biggest debt that a person can accrue. With mortgage protection insurance, the money will go straight to the lender, and the ownership of the home will be guaranteed to the beneficiaries.
Guaranteed Acceptance
Usually, MPI policies are issued on a guaranteed acceptance basis and do not require a medical exam. People with health issues or disabilities could really take advantage of this opportunity. But since health is a factor in determining premiums, such individuals would need to pay very high rates, or they would not be eligible for a life insurance policy at all. On the other hand, MPI policies do not have an underwriting process, so the premiums are not as high.
Mortgage Protection Insurance During Unemployment
We are living during times of economic uncertainty. If you suddenly find yourself unemployed, this insurance can be very beneficial.
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Do I Need Mortgage Life Insurance
Insurance is one of those things you may not like to pay for until you need it. Its also a complicated issue, made worse by the fact that there are so many different kinds of insurance out there. You can insure just about anything these days, including your mortgage. And some policies seem to cover the same things but with slightly different names, like PMI and MPI. Transpose a couple of letters and you have two completely different types of coverage.
A very small percentage of homeowners carry mortgage insurance, sometimes called mortgage protection insurance, or MPI. Many more carry private mortgage insurance, known as PMI.
So whats the difference? A lot. Only one will protect you if your co-owner dies before the mortgage is paid off. Whether you need mortgage insurance in case of death can depend on your estate plan, your health and your job security.
What Are Optional Mortgage Insurance Products
Optional mortgage insurance products are life, illness and disability insurance products that can help make mortgage payments, or can help pay off the remainder owing on your mortgage, if you:
- become critically ill
Optional mortgage insurance is a type of credit and loan insurance that you are usually offered when you take out or renew a mortgage. You dont need to purchase optional mortgage insurance to be approved for a mortgage.
There are important limits on the coverage that optional mortgage insurance products provide. Read your policy carefully and ask questions if theres anything you dont understand before purchasing these products.
These optional products are different from mortgage loan insurance that you are required to purchase if your down payment on your home is less than 20%.
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Do You Need Mortgage Protection Insurance
The inflexibility of mortgage life payouts means youre usually better off with a regular term policy with enough coverage to pay off your mortgage. Then, when you die, your family has options:
-
They can use the death benefit to pay off the house and keep any leftover cash.
-
They can also choose to skip paying off the mortgage and use the money as they see fit it’s their money, not the lender’s.
A mortgage life insurance policy locks your loved ones into paying off the mortgage, even if other bills and needs are more pressing.
The biggest benefit of mortgage protection insurance is its convenience. It lines up exactly with your mortgage balance and theres usually no life insurance medical exam required to buy a policy.
If youre denied for term life insurance or whole life insurance for medical reasons, mortgage life insurance may be an option to financially protect your home.
Mortgage protection coverage can also supplement an individual life insurance policy. For example, if your mortgage is paid off with money from a mortgage life policy, then your family could use all the benefits from your term or whole life insurance policy for bills and other expenses.
Mortgage Life Insurance Companies
For far too long people have been searching for the best mortgage life insurance companies and whether to sign up for suitable plans. Make sure the company you choose guides you on exactly what a mortgage life insurance is and how it works, and if it suits you, then only you sign up for it.
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What To Consider With Mortgage Life Insurance
As with all insurance policies, there are a number of issues to consider.
First, since the mortgage balance is declining with each payment it follows that the death benefit available from mortgage life insurance is also falling. With some policies, however, there may be a residual coverage amount, say not less than 20 percent of the original loan amount.
Second, because mortgage life insurance is insurance, the money paid out by the policy is tax-exempt. See a tax professional for details.
Third, you can typically get a rider with mortgage life insurance which allows you to add a second person to the policy. In other words, if the property is owned by two people and one dies, the policy will kick in to pay off the mortgage balance. This will allow a co-homeowner, such as a spouse, to own the property free and clear of any mortgage debt.
Fourth, insurance coverage may not be available for home buyers above a certain age. Alternatively, lenders cannot engage in age discrimination and must make mortgages available to any qualified home buyer regardless of age.
Fifth, you may be able to find a mortgage life insurance policy that has a premium waiver that goes into effect in the event of disability. If you see such a clause it will be important to review exactly what it means with an insurance broker. Get your answers in writing.
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The Bank Can Take Possession Of The Property
If the loan cannot be repaid, the bank can take possession of your property
When you commit to a home loan, you areputting your home up as collateralin exchange for money being lent to you.5 This means that the lender can take possession of your home if you fail to repay the loan.
If the bank takes possession of your home, your family will no longer have the right to reside there. They will thus have to move out and look for a new place to live.
Mortgage insurance ensures that your mortgage gets repaid no matter what happens to you. If you pass away, your mortgage protection will pay for any unpaid sums on your home loan. This offers your family the assurance that they can continue to live in the place they call home no matter what, and also gives them the benefit of having a fully repaid home loan.
If you are a HDB flat buyer below age 65 and are using your CPF Ordinary Account to repay your mortgage, you already have mortgage protection
HDB flat buyers using their CPF Ordinary Account savings to repay a home loan are automatically protected by the Home Protection Scheme 6 until the age of 65.
The HPS is a home loan insurance plan that ensures that your family does not lose their home if you pass on, become totally and permanently disabled or are diagnosed with a terminal illness.
All private property buyers as well as HDB buyers who are not using their CPF OA to repay their home loans will need to arrange for their own mortgage protection from the start of the home loan.
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How Much Does Mortgage Protection Insurance Cost
Mortgage protection insurance rates vary depending on the size of your mortgage and how much time is left on the loan. When figuring out MPI premium costs, insurance companies consider:
Your age
Length of time and amount left on the mortgage loan term
Whether the policy covers two spouses
Lets take a look at possible monthly costs. If you have $120,000 left on your mortgage, you may find a mortgage insurance policy with bare minimum coverage of $50 a month. Adding riders, such as return of premium and living benefits, can increase the average monthly cost of mortgage protection insurance payments to $150 or more on that same $120,000 amount.
Types Of Mortgage Life Insurance
Mortgage life insurance policiesalso called mortgage protection life insurance or mortgage protection insurance policiescome in two basic forms. The first one is a declining payout policy, where the policy size decreases proportionally as the mortgage loan drops. Therefore, the closer it is to zero, the payout drops, too. The other type of mortgage life insurance is called level term insurance. With this kind of policy, the payout doesn’t decrease.
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How Can I Protect My Family Financially If I Die
However, it is sensible to consider a mortgage protection plan to cover the risk of death.
The type of policy you would need for this is Mortgage Life Insurance. This policy would pay out a lump sum benefit to repay the mortgage should you pass away during the policy term.
What is Mortgage Life Insurance?
Mortgage life cover is particularly popular with couples taking out a joint mortgage as it prevents one partner being left with a potentially unmanageable debt should one partner pass away .
It also makes sense not only to cover the risk of death but also to consider adding Critical Illness cCover to your life insurance plan. Including this option means that the mortgage could be repaid should either partner suffer a critical illness as defined by the policys terms.
Most plans cover around 40 serious illnesses and injuries , although there are some policies which cover more than 100 conditions and those which cover less than 10, so it pays to read the insurers terms and conditions carefully.
How Likely Is It That Will You Be Accepted For Mortgage Protection Insurance
As long as you have a home with a mortgage on it, then its typically guaranteed that your application for mortgage protection insurance will be accepted. This type of coverage can be valuable for people with long-term health issues, or people who work high-risk jobs. Conditions that can raise the cost of life insurance or disability insurance or even get you turned away from having them dont have as much bearing on mortgage protection insurance.1
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How Much Will Mortgage Protection Insurance Cost
This will vary from company to company and policy to policy. In general, you may pay more for mortgage protection insurance than you would for a comparable life insurance plan. But the advantage of mortgage protection insurance is that factors like your health and your financial situation have less of an effect on your premium. And, they typically wont cause you to be denied.