Why buy a Mortgage protection life insurance, when simple life insurance will do the trick?
Buying a new house can be a daunting experience as it is one of the most expensive purchases of your life. Taking mortgage on the new house just makes you more anxious as there is numerous amount of paper work and legal formalities that you go to the bank for getting your loan sanctioned. It all gets quite over whelming if it is your first time experience going through this process. It is inevitable that the banker will try to tie you with a mortgage protection life insurance to protect the bank’s interest if anything happens to you.
This article will help you decide if you require or don’t require mortgage protection life insurance. Let’s make one thing clear, this article does not say that you don’t need to insure your mortgage, but in most circumstance, a simple term life insurance policy will do the same job with added benefits.
Under Mortgage protection group policy offered by the bank, premium calculation is based on the amount of the loan and age of the applicant. So, basically you are getting a standard rate in comparison to a term plan. For example – The people who are in a specific age group and common mortgage amount falling within the specified parameters will get the same deal. Whereas, a term insurance plan takes into consideration age, salary, term period, coverage amount, gender and life style habits to calculate the premium. With these parameters a policy holder gets a more customized quote suiting their requirements and altogether a better deal.
Declining value and benefits
The benefit value of bank’s mortgage protection life insurance declines as you re-pay your mortgage. So, as the time goes on and you continue repaying your loan, the sum assured of the mortgage life protection can be equal to remaining outstanding mortgage/loan amount. For example – If your mortgage was for INR 50 lakhs for a 15-year term period and you have already paid INR 35 lakhs by the end of the 10th year then the mortgage protection value will be remaining INR 15 lakhs only. This means if you, unfortunately, die in the 10th year then the mortgage protection insurance will pay out 15 lakhs and the policy will terminate. Whereas, traditional pure term insurance policies keep their value constant for the entire term.
With mortgage life insurance, the nominee is the bank and with personal life insurance, you have the option to choose the nominee. Your nominee will have the flexibility to choose how to spend the money. They may want to use the money for any other emergency which will be of higher priority that time. Anyways having money in the hands of family member or nominee will be better in the time of crises and let them decide how they want to use the money.
Mortgage life insurance is tied to mortgage and not you
As discussed in the previous point, mortgage life insurance is tied to your mortgage. Whereas, term life insurance is an individual policy that is related completely to you and your loved ones. In case of an eventuality, the proceeds will be handed to the loved ones for their convenience and decision.
Analysis of your existing insurance coverage
If you already have a term plan with good coverage you may already have sufficient coverage to protect your mortgage. However, your bank will not bother about your existing coverage and will still want to sell the mortgage protection insurance to you. You can get the analysis done with your insurance adviser and determine if you need additional coverage or not.
Critical Illness and disability Cover
Finally, Mortgage Protection life insurance is not taken just to protect your mortgage in case of your untimely death. Make sure to take into account disability and critical illness which can also be the reasons of non-payment of the mortgage. So, whatever life insurance you take do ensure you attach riders to the base plan or take a plan that covers disability and critical illness for comprehensive coverage.
Based on the above points you can make your decision as to what type of insurance cover would better suit your requirements and circumstances.
Recommended Read: How to Choose & Buy the Best Policy Online?