Whether you’re buying a home or renewing an existing mortgage, there’s one question you should ask yourself:  “How will my family pay off this monster debt if I should die?”  Of course, you want your family to be able to stay in their home no matter what happens to you — so the obvious answer to your question is mortgage life insurance.

But is your bank or other lending institution the best place to get that protection?  Most lending institutions offer mortgage life insurance as part of their mortgage packaging, so it’s very likely your lender will ask if you’d like to add their coverage to your monthly mortgage payment — and it’s very tempting to say yes, because it’s just so darn easy. But while you sign on that dotted line, consider this: You could find yourself purchasing insurance that does more to protect the lender than you. A better solution may be to choose an insurance plan that insures you, not your mortgage. It may be in your family’s best interest to see if a personal life insurance policy is a better way to go.  Here’s why:

With bank-offered mortgage life insurance…

·        The beneficiary is the bank. Most lending institutions offer non-convertible term insurance. There are no cash values and coverage is exactly equal to the amount of your mortgage. Your beneficiary has no choice about how to use the proceeds, at a time when this money may be required the most.

·        Your coverage decreases as the mortgage is paid down, but your premiums remain the same for the entire period — meaning the cost of your insurance relatively speaking is actually increasing as your coverage decreases. And you’ll have absolutely no coverage when the mortgage is paid off.

·        Your lender owns the policy and may raise the premiums or cancel it at any time. And if you find a better mortgage rate at another lending institution, your existing mortgage insurance cannot usually be moved. You would have to re-qualify medically for protection with your new lender (or even if you stay with the same lender but arrange a new mortgage on another home) and if you’re older or in poorer health, you’ll likely face much higher premiums if you’re able to obtain the coverage at all.

With a personally owned life insurance policy …

·        You own the policy and designate the beneficiary. Your beneficiaries can choose how to use the proceeds — to pay off the mortgage, provide a monthly income or take care of immediate needs. It’s their choice, not your lender’s.

·        Your coverage isn’t reduced by your declining mortgage balance and coverage continues after the mortgage is paid as long as you continue to pay the premiums. Your beneficiaries will always receive the total value of the insurance plan you purchased. 

·        Premiums are guaranteed for the life of the plan and only you can cancel or make changes to your plan. You choose the type of insurance that best suits your needs with premiums that suit your budget. And you’re free to reduce the amount of coverage when you want.

·        Your plan can usually go with you from one home to the next, one mortgage to the next.

There’s no doubt mortgage insurance is absolutely necessary to protect your home and family.  A professional financial advisor can help you select the right mortgage protection for you — protection that is a perfect fit with your overall financial plan.