Be careful with this type of insurance. Mortgage protection is designed to help protect you, while Lender’s mortgage insurance will work to protect your financial institution holding your mortgage. When you take out a lender’s mortgage insurance policy, you are not protecting yourself. This type of insurance protects the financial institution if you default on your mortgage. It applies when you default on your mortgage and the money that is raised from the sale of the home and other assets you lose does not provide enough money to the lender to cover the debt of the home. This type of mortgage insurance is likely a must for those who are getting into their first home loan and have no to a small down payment for the purchase of the home.
Mortgage protection insurance provides you with protection should you become unable to meet your mortgage obligations. This type of policy will cover repayments to help you stay in your home should you be unable to make payment.
Coverage Under Lender’s Mortgage Insurance and Mortgage Protection Insurance
It is important to consider what type of mortgage insurance you are getting and consider the requirements of each.
The amount of lender’s mortgage insurance you will need to have will be closely related to the amount of your deposit. In most situations, about 20 per cent down payment or less will require the use of lender’s mortgage insurance. This type of insurance is considered compulsory whenever there is a higher level of risk to the lender. Generally, you have little choice in which company is used and the amount that you must pay based on what your mortgage lender requires. This should be a decision made between you and your lender.
With mortgage protection insurance on the other hand, you do have options. This type of insurance is offered with various differences from one insurer to the next. Policies will be very different, but generally will provide a set amount of payment if you are unable to work due to an approved condition, such as an injury or illness, or in some situation accidents. There are other policies available that are more far reaching. For example, (depending on the policy) sometimes the comprehensive version of mortgage protection insurance will provide you with a financial payout if you become involuntarily unemployed for a number of reasons.
With mortgage protection insurance, be sure to get a policy that will provide you with the costs of covering the mortgage entirely if you should die or become permanently disabled.
Questions for Your Provider
When you apply for a loan, ask your mortgage lender if they require lender’s mortgage insurance. If they do, you will need to find out if they provide a specific company to work with or if you are able to get your own insurer. The lender’s mortgage insurance company will apply premium payments to your repayment at the time that the loan is put into place, giving you little to no control over it. Remember, though, once you reach the 20 per cent level to stop the insurance payments as they will no longer be needed.
With mortgage protection insurance, there are several questions to ask.
What types of illnesses, injuries and accidents will qualify? What will not qualify? Are there any max payout time periods? Is there any waiting periods before payments will be made? Does your policy provide for the payment of your entire mortgage all at once if you die (by your family) or become disabled for the long term?
Be sure to understand all of the policy details and agree to the amount of premiums and payouts.
Ways to Save on Lender’s Mortgage Insurance and Mortgage Protection Insurance
You will not have much opportunity to cut costs with lender’s mortgage insurance. With mortgage protection insurance, the best way to save money is to know what options you have by comparing several companies. Some plans offer discounts for long time use. The amount of payout and the types of qualifying payouts will determine the overall cost of the policy.
Beware Before Signing
With all insurance policies, know what the policy covers and what it does not. With lenders mortgage insurance, you will sign for the insurance at the time of making your mortgage application and contract. Fully understand what is being covered as well as when you can cancel your insurance payments.
With mortgage protection insurance, take the time to fully understand your options and the costs, including the any clauses that may cause the policy to be void (such as not full disclosure of illnesses.)
Additional Coverage to Consider
Mortgage insurance in general does not provide you with enough coverage for your home. You will need home insurance. In addition, with mortgage protection insurance, you should not consider this type of insurance to replace life insurance plans. Both plans often provide enough protection for you.