What's Mortgage Term Insurance? Do You Need It?

Mortgage term insurance or Private Mortgage Insurance (PMI) as it is popularly referred to, is an insurance product that pays your outstanding mortgage amount to the bank in the event that you die, become disabled or become critically ill. Some features of mortgage term insurance are described below:

The Underlying Insurance Product

Mortgage term insurance is essentially a term insurance product that has level premiums, but a decreasing face value. This is in line with the fact that as you make mortgage payments, the outstanding loan balance decreases, hence the coverage amount of your term insurance corresponds to the reduction.  The beneficiary of the insurance policy is the bank with which you hold your mortgage.

The Benefit of Mortgage Term Insurance

Since your primary residence is the place where you and your family live, mortgage insurance ensures that if you are disabled, or pass away and are unable to continue making your mortgage payments, your dependents will have the benefit of maintaining the primary residence in the difficult time of adjustment, and not have to worry about the burden of mortgage payments to keep living in the house.   This type of insurance offers peace of mind for the family relying on the sole earner or relying on two incomes for the payment.

Mortgage Insurance Does Not Typically Require Medical Examination for Qualification

Unlike many other life insurance policies, mortgage insurance does not typically require medical evidence to insure a client. This type of insurance is suitable for persons looking to get coverage who would not ordinarily qualify for life insurance coverage due to health conditions.

The Disadvantages of Mortgage Term Insurance

Unlike a typical life insurance policy, mortgage insurance only pays out in the event that you die and there is an outstanding mortgage liability in your name for the specific mortgage on which you took out the policy. It is important to note that mortgage insurance does not pay out anything if you do not pass away or become disabled during the policy period. There are no policy loan or cash surrender benefits that you can unlock from this policy.

Do You Need Mortgage Insurance?

Mortgage term insurance is a personal choice.  Most lenders do not require this type of insurance with your loans.  Banks require mortgage insurance in the case of default only.  The insurance premiums can be expensive so many opt for life insurance instead.

Mortgage Terms Insurance is set up to primarily to protect the interests of your loved ones and the bank or lender because the loan will paid in full in the case of death.

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