This
short guide was created to help you understand the
basics on how mortgage insurance works and to help
you choose the right mortgage insurance for you. We
do not sell any mortgage insurance ourselves, so you
can be assured that all of the information in this
guide is independent and unbiased.
Background
on mortgage insurance
Mortgage insurance is essentially just a special form
of life insurance that pays off the mortgage on your
home should you and/or your spouse die (this depends
on who is on the mortgage and who is on the mortgage
insurance policy). For example, if you are the primary
breadwinner in the family and you die, your spouse
will still be liable for the mortgage and mortgage
payments. With mortgage insurance, your mortgage is
paid off and your spouse can continue to live in the
home without making any additional premium payments.
Mortgage
insurance is typically provided by your mortgage company,
which becomes the beneficiary in the event of your
death. And although protecting your mortgage and giving
your survivors peace of mind and financial stability
in the event of your death is a notable and worthwhile
goal, the consensus among financial experts is that
mortgage insurance is generally NOT the best way to
provide mortgage protection, for several reasons:
-Mortgage
insurance is a decreasing term policy, which means
that the amount of the benefit decreases over time
as your mortgage is paid off. However, your premiums
remain constant, so you are in the position of paying
relatively more and more for the same coverage.
-As
the mortgage company is usually the beneficiary of
the mortgage insurance policy, they will receive the
payoff directly. This does not take advantage of potential
mortgage interest tax deductions for your survivors.
-Mortgage
insurance policies are usually tied to a specific
house. Therefore, if you ever sell the house, all
of the premiums that you paid have been wasted,
and you will have to start all over again with your
new house.
If
mortgage insurance is not advisable, how do you get
mortgage protection?
The good news is that although mortgage insurance itself
is not advisable as a form of protection, there is a
way to protect yourself. The best form of insurance
to cover
