Mortgage Life Insurance

When you take out a mortgage, you're increasing the financial obligations of your family and your need for increased protection. When the primary income earner of the family dies mortgage payments may become unmanageable and lead to financial hardship and the necessity of selling the family home. Mortgage Life Insurance offered by a number of lenders and life insurance companies can help ensure that your family can keep your home, should you die before the mortgage is paid off.

Most mortgage insurance policies will cover, at the date of your death, up to a maximum of $300,000 per mortgage. Usually both you and one co-borrower can be insured under joint coverage. In the event of a death the mortgage would be paid off leaving the family without the burden of these mortgage payments. Premiums are based on your age and the amount of your mortgage when you apply for coverage and what's more, premiums will not increase for the life of your mortgage because of increased age or changes in health. The cost of joint insurance is usually 30% to 40% more than the cost of single coverage and is based on the age of the older of the two co-borrowers. The premiums are usually added to your regular mortgage payments. Mortgage insurance is usually offered by the financial institution that holds your mortgage. The application process often involves a brief health questionnaire before approval is given and applicants generally have to be within the ages of 18 to 65 years.

Costs of mortgage life insurance are usually based on a price per $1,000 of mortgage balance, increasing as age at the time of application increases.

30yrs to 35yrs=	12 cents / $1,000
36yrs to 40yrs=	18 cents / $1,000
41yrs to 45yrs=	26 cents / $1,000
46yrs to 50yrs=	40 cents / $1,000
51yrs to 55yrs=	60 cents / $1,000
56yrs to 60yrs=	80 cents / $1,000
61yrs to 65yrs=	$1.00 / $1,000

The monthly premium per $1,000 of mortgage debt increases considerably as borrowers age. Assume you are 39 years of age with a $100,000 mortgage and 25 year remaining amortization. The cost per $1,000 of mortgage debt is only 18cents. Given the mortgage amount the monthly premium would be $18 / month. This is not a great deal of money in return for the comfort of knowing your family will be debt free in the event of your death. If you were to invest this same amount every month for the next 25 years at, say 4% annual interest you would have accumulated merely $10,700. For some this is a small opportunity lost for the peace of mind purchased.

Mortgage life insurance is most appropriate when the income of the surviving spouse is insufficient to carry the entire mortgage debt. In such cases the loss of one spouses income would result in financial obligations that are unmanageable for the surviving spouse. Mortgage life insurance should only be purchased if there is a beneficiary to the mortgage being paid out on your death. If you are a single owner of your home, with no relatives or partners residing with you, and your death would not add greater financial hardship to others, it may be appropriate to decline mortgage insurance. In such cases the sale of the vacant home to satisfy amounts owing would not impact another. It also may be that accumulated wealth or existing life insurance policies benefiting you family will result in an adequate income to cover these mortgage payments without causing financial hardship. Speak to an insurance specialist to determine if mortgage life insurance is appropriate for your family but be sure that they are considering all of you other insurance coverage's and risks.

Term Life insurance as an alternative

There are advantages to simply taking out regular term life insurance over mortage life insurance. Such as:

It may be less expensive to purchase individual term life insurance for the outstanding value of the mortgage than it is to purchase creditor insurance through your mortgage lender.

Creditor insurance with your bank or trust company covers the outstanding balance on the mortgage while you continue to pay the same premium. Personally held insurance remains level and can only be changed by you.

With creditor insurance, the bank or trust company is the beneficiary, with personal life insurance you can choose your own beneficiary. The beneficiary can choose to pay off the mortgage or use the tax-free proceeds to pursue other opportunities that may not be available.

If you move your mortgage to another lending institution, you may lose your creditor insurance and must reapply. You may not be eligible for new coverage. A personally owned policy is fully portable. It stays with you wherever you have your mortgage.

Once your mortgage is paid you no longer have insurance, A personally held term insurance policy can be kept as long as you choose.

As is the case with most life insurance products, they only really payoff when on death. This is hardly a comfort, so the topic is often avoided. While this is a sensitive issue to discuss, particularly when starting a new life in a new home, it is essential that these risks be addressed.

There are many circumstances when employment income is interrupted for a period of time due to an accident or illness. Accident and Illness Mortgage Protection is available and will cover the mortgage payment, up to a set maximum, in the event that your income is interrupted. The qualification process is similar to mortgage insurance. Again, costs are usually based on your age, amount of coverage selected and in some cases employment risks.

For more information on mortgage life insurance contact your Mortgage Consultant.