T o safeguard their self and loved ones from undue financial burden and distress, most people opt for mortgage insurance. But while planning for mortgage protection, it is vital to choose the right institution which ‘actually provides’ financial protection as well as client friendly features; providing him better value for invested money as well as safety of financial assets.

Since banks are widely accepted reliable financial institutions which people extensively use for their financial needs, while procuring mortgage from these financial institutions, people feel inclined to buy mortgage insurance offered by them. Little do they realise that the very trusted financial institutions may not be the best source of every kind of financial need. It is imperative for the client to be aware of the pros and cons of insurance plans offered by different institutions so that he/she may make the wise decision to get maximum benefit in times of need without falling into any financial trap.

Besides banks/financial institutions, the other major institutions which offer mortgage insurance are – life insurance companies. As an insurance advisor having years of experience in this field, I would always advise my clients to buy mortgage insurance from life insurance companies if they want peace of mind in future. The reason is not simply because I am working in this field; but is rather based upon considerable evidence which explicitly shows that insuring mortgage through us is in every way much more beneficial than insuring through other financial institutions. Following comparison between the features of these institutions will help you identify as to which of these institutions cater better to your needs:

Ownership :The mortgage insurance policy done through us (insurance companies) is ‘owned by the insured’ (you). It can only be cancelled by you-either by giving in writing or by non-payment of premiums. But in case of banks/ financial institutions, the policy is a group policy and you have no control over it. Strange though, but yes; you are not the owner.

Beneficiary In case of mortgage insurance through financial institution, the lending institution is the beneficiary instead of your spouse or family member; while in case of insurance company, your spouse or family member is the beneficiary. Thus, insurance company allows the spouse/family member exercise control over the use of financial help. If the spouse/family member can pay off the rest of the instalments, she/he can use this financial help as per her/his need. Otherwise, he can use that whole amount or a portion to pay

off the mortgage. But in case of financial institution, the money gets directly paid to the lender to pay off the debt; the spouse/ family member has no control over this money and in case of absence of any additional income, then may be left with no choice but to sell the home.

Clarity of terms of mortgage Another major difference which makes purchase of mortgage insurance through life insurance company more desirable and secure is- the clarity of terms of insurance. Underwriting is done at the initial stage, and once approval is given, the protection is irrevocable, the only underlying condition being- payment of premiums. You don’t need to re-qualify at a later stage. But the disadvantage with bank/financial institution is that underwriting is not done at the initial stage. They do post-claim underwriting, and there are chances that you may be denied the claim. Does it make any sense?? – Certainly not. But yes, this is true! It makes you vulnerable during times of need. And this fact is based upon real marketplace investigations.

Mortgage insurance through us grants healthy people lots of discount on the premium. You can use this saved money for any purpose, including fast payment of mortgage but financial institution does not offer this advantage; there is no waiver/discount for people in good health. The premium amount is the ‘standard amount’ for everybody- in good health or ill health.

Guarantee for premiums The insurance company guarantees the same amount of premium throughout the period of insurance. But for policy bought through bank/financial institution, there is no guarantee of the amount of premium. It can increase depending upon the claims experience of the insurance provider of the lending institution.

Portability of the policy The insurance policy we offer you is portable and remains unaffected in case you relocate. But this portability is not provided by the financial institution. If you change your lender, the policy is cancelled. Coverage The coverage provided by mortgage insurance doesn’t decline unless you request. Even if you request for a decline in coverage, your premium decreases at a proportional rate. But in case of financial institution, the coverage amount is equal to the mortgage amount. With the gradual decrease of mortgage amount, coverage also decreases leading to a drastic reduction of your benefits, while your premium amount remains the same.

Retention of coverage Insurance company allows you to retain your coverage after you pay off your mortgage. On the other hand, coverage obtained in insurance through financial institution terminates after you pay off your mortgage.

Protection against the effect of renewal If you purchase mortgage insurance through us; once your policy is approved, you don’t have to face the hassle of renewing it as insurance can be done for a term of 10 years/15 years/20 years/30 years. But again, if you have done it through a bank, after a period of five years, the policy terminates and you have to renew it again, meaning thereby you will need to re-qualify and may eventually end up paying higher premiums. The above comparison makes it evident that buying mortgage insurance through a life insurance company is in every way more beneficial than buying it through financial institutions. However, due to lack of awareness, majority of people still find it convenient to buy it through these institutions, especially when it is being offered along with bank mortgage.

Being an Insurance Advisor with considerable experience of the intricacies of this field, I can not only advise you to protect your home with mortgage insurance, but also can show the way to protect and utilize your invested insurance money during times of dire need. Certain points should be kept in mind before you consider buying mortgage insurance: Be sure that you qualify for insurance

Mortgage insurance policies involve many terms and exclusions. Understand their meaning and their application. If you have any pre-existing medical conditions; for clarification, always call the insurance company directly (NOT the bank that sold you the coverage). If you have concerns about any pre-existing medical conditions; call your doctor Shop around.

It’s better to buy insurance from a licensed insurance broker who will explore any medical issues at the initial stage. Consider buying or topping up an individual life insurance policy to cover your mortgage. Know your coverage You may already have adequate insurance coverage through your work or other policies.

According to insurance experts: it’s better to buy one traditional insurance policy than purchase a number of small policies for a variety of products. Always ensure first that you need insurance before you buy it. Mortgage insurance is meant to protect your loved ones from making mortgage payments in case of any foreseeable circumstance. It may not be applicable if you do not have any dependents who would need to keep your home in such circumstances.

 

Sandeep Ahuja