"Jumping off the cliff into adulthood" were the exact words a millennial client used to describe the process of buying a house recently. The paperwork needed to process the deal felt a little overwhelming. They had to collect Notice of Assessments, pay stubs, bank statements, employment letters, and more! At the end of the process, the lender offered them mortgage insurance. I'm sure their eyes glazed over as they had to make one final decision: take it or leave it? They gave us a call and asked our opinions. We broke down a few of the most important differentiations for them.

Ownership

Who actually owns the mortgage insurance policy? The lender. What happens if you want to change lenders or shop around for a cheaper rate? You may risk losing the coverage. 

Who owns a life insurance policy? You do! You have full control! You can increase it, decrease it, mold it like Playdoh so it perfectly fits your needs.

Decision Factor: Critical

Beneficiary Designation

Who is the beneficiary of the mortgage insurance policy? The lender. It doesn't really make sense, does it? You pay the premium to protect the lender and then the lender gets the proceeds. On top of this, the proceeds must pay off the mortgage.

Who is the beneficiary of a life insurance policy? Whoever you chose! It could be your spouse, your children, grandchildren, and you can change or update as you please. Once again, complete flexibility to make sure the insurance pays out to who you want it to pay to. In contrast to the mortgage insurance, you can use the life insurance proceeds for whatever you please. You can pay off the mortgage, take time off work, take a vacation, or fund a child's post secondary education.

Decision Factor: Critical

Benefit Amount

To follow up on the last comparison, this is usually the eye-opener when making the comparisons. As mentioned, mortgage insurance only covers your mortgage. If you've been diligent at paying down your mortgage and when you pass away, you only owe $5,000, then that is all the coverage you have with mortgage insurance. Here's the kicker though: You are still paying the same price as the day you started and had $450,000 of coverage!

With life insurance, if you apply for $500,000 of coverage, that amount stays level for the lifetime of the policy (or if you choose to change it). Once issued, the insurance company cannot change it, only you have the power to do so. So, just to clarify, if you only have $5,000 owing on your mortgage when you pass away, your beneficiary receives the entire $500,000 and can do what they please with the proceeds.

Decision Factor: Critical

Verdict of Mortgage Insurance vs. Life Insurance

We've only brushed the surface of comparisons, looking into the what we feel are three of the most important factors. Ultimately, we feel that life insurance gives you more control, flexibility and peace of mind with your policy. It’s the clear winner here. Feel free to call us for a quote to see how much money you'd save by switching to life insurance!