Mortgage Protection Plans

Many different types of mortgage protection plans are available for borrowers to protect against illness and disabilities, job loss in some cases and death. 

Mortgage protection plans are available through mortgage agents and brokers, in addition to lenders that provide the mortgages including banks, credit unions and trust companies.  In addition, other forms of mortgage protection are available through life insurance companies and life insurance advisors. 

 Borrowers need to ensure they have the appropriate mortgage protection insurance in place. 

There are similarities in the coverage provided by mortgage protection plans and separate mortgage protection insurance.  However, there are also significant differences in coverage and costs as well.

Mortgage Protection Plan Summary

  • Covers the balance of an existing mortgage
  • The mortgage lender is the beneficiary of the insurance
  • Coverage on the mortgage actually decreases as the balance decreases
  • Coverage is sometimes lost if you switch lenders in some cases
  • On cancelling this type of insurance, you lose the money you paid in premiums
  • Changing the insurance is extremely difficult and in most cases not possible
  • Almost all individuals are approved for coverage
  • Insurance premiums do not increase in most cases

Mortgage Protection Insurance** Summary

  • The coverage is comprehensive, including the mortgage, line of credit, and credit cards
  • The beneficiary of the insurance can be an individual, spouse, child or anyone else
  • Coverage does not decrease as the mortgage balance decreases
  • Coverage is not lost if a borrower switches lenders
  • When cancelling this type of insurance, the return of premiums is sometimes possible
  • The insurance can be changed without difficulty. However,  it may require reapplying or a subsequent underwriting
  • Not all individuals are approved for life, disability and critical illness insurance
  • Insurance premiums can be set in some cases, depending on the type of insurance
  • In many cases, term life insurance provides more adequate and cheaper coverage

** Offered by life insurance companies and licensed life insurance agents

Careful analysis of one’s personal circumstances is required prior to deciding on what form of insurance is most appropriate.  Individuals and families can be placed in great risk without proper and planned strategies in place. For example, imagine an individual who is married, and is the sole income earner in a family.   This person has a $500,000 mortgage and that their spouse is at home with 4 young children.  What are the consequences for this individual, who purchased mortgage protection plan life insurance with one bank, who decided to transfer his mortgage to a competing bank where a new mortgage protection plan would have to be put in place.  Let’s assume for a second that this individual declined coverage as they elected to pursue more adequate, cheaper life insurance from an insurance company.  Let’s assume after the mortgage was transferred, that the individual was declined insurance because they had a life threatening illness, that was most likely fatal within months.  What would be the outcome for the surviving family?

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