Term Life Insurance VS Mortgage Insurance

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Susan McInnis | August 18, 2019

We often still get questions on whether I should buy Term Life Insurance or Mortgage Insurance from a Bank or other lending institution. So we created the following comparison between the two products. We think it will become obvious that Term Life Insurance is much better value for the $$ than Mortgage Insurance. Have a look and you can decide…

Term Life Insurance 

  • You Purchase an individual policy.
  • Your own the policy – you have complete control over it.
  • You have a premium rate that is guaranteed in advance, the company cannot decide to change it.
  • You may purchase any amount of coverage that will never decrease over the Term of the coverage.
  • The insurance company cannot cancel your insurance if premiums are paid, only you can.
  • Your individual policy is fully portable. It is not connected to the mortgage and if you re-finance your mortgage with another bank, you do not need to re-qualify.
  • You can convert this policy, regardless of your health.
  • You decide who your beneficiary is. Upon death, your beneficiary will receive the proceeds and your beneficiary decides how and where to use those funds. The proceeds of a life policy are protected from all creditors, including a bank.
  • If you use level term, and insure both the husband and wife individually, then both policies pay benefits in the event of both deaths.
  • You are buying the coverage from a licensed broker or agent who has been trained to understand your overall need for life insurance and how to integrate that with your total need.

Bank/Mortgage Insurance 

  • The coverage is under a group policy.
  • The bank owns the policy – you have no control over it.
  • The group policy premiums can be changed if the company decides to raise premiums for the group.
  • The coverage is for the outstanding amount of the debt. As your mortgage reduces, your insurance decreases.
  • The policy can be cancelled by the bank or by the issuing company.
  • The coverage will terminate if you re-finance your mortgage, or if you sell your house, or if you pay off your mortgage, or if the bank forecloses on your mortgage.
  • The group mortgage policy is not convertible.
  • The bank is your beneficiary and the death benefit is automatically used to pay off the mortgage, regardless of the wishes or circumstances of your dependents.
  • If you and your spouse are both insured on a bank mortgage policy, then only one payment is made in the event of both deaths.

As you can see above there are many reasons why owning traditional life insurance where your family is the beneficiary and not the bank is a superior choice.

If you would like to discuss the benefits of Term Insurance over Mortgage Insurance please call 902-626-6637 or drop a note to smcinnis@peake-mcinnis.com.

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