INSURANCE
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Personal insurance
Mortgage life insurance is an insurance policy specifically designed to protect a mortgage with repayment. The underlying concept of this insurance policy is that if the policyholder were to die or become incapacitated, the coverage will pay off the balance of the mortgage. This coverage specifically protects the borrower, while private mortgage insurance is intended to protect the lender from the risk of default.
The general structure of a mortgage life insurance product is as follows; At the beginning of the contract, the value of the insurance cover must be equal to the outstanding capital on the repayable mortgage. The termination of the contract is parallel to the date of the final payment on the mortgage. The insurance company, which provides the coverage, then calculates the annual rate at which the coverage should decrease so that the capital values reflect each other. Depending on the insurance company, there are a variety of mortgage life insurance products on the financial market. Some offer to pay if the insured is diagnosed with a terminal illness, and they are expected to die within the next 12 months. Based on the structure of mortgage life insurance, the value of this product decreases as the policyholder pays more premiums to the insurer.
Mortgage Life Insurance vs. Traditional Life Insurance
Mortgage life insurance is not required by, and the decision to initiate this product is up to you. This insurance product has been heavily criticized by financial advisors; In some circumstances, a product of this caliber is suitable for individuals who do not qualify for life insurance products. Mortgage life insurance is sold without reservation, and after you make a claim (if any), the insurance company indemnifies you so you can indemnify the bank. Banks do not sell this product as their own product. rather, it is sold through them on behalf of an external company. If a bank tries to force you to buy mortgage default insurance or discriminates against you for not buying it, it is considered illegal behaviour and referred to as “tied selling”. The term “tied selling”
Some details of mortgage life insurance products include the following:
- The bank is the beneficiary – unlike life insurance policies in which the insurer can choose its own beneficiary.
- Coverage is non-transferable – this means that the policy is tied to a specific mortgage and cannot be transferred to other properties.
- The plan ends upon the death of one of the spouses – this is the opposite of life insurance policies that allow beneficiaries to receive a double benefit in the event of the death of both spouses.
- The cover is not convertible – this means that the policy cannot convert the product into any form.
- There is no cash value – at the end of the coverage, no premium is returned.
Do you need mortgage life insurance?
The question behind this product is, “Does this make sense?” To answer this question, it’s best to have your needs analyzed by a financial advisor or life insurance agent, which will provide a clearer picture of whether this product is right for you. When considering ways to ensure your mortgage is paid off in the event of your death before it ends, remember to shop around to get the right level of benefits at a realistic price. The life insurance industry is so competitive, you don’t have to buy the first available policy you find, do your research first.
