Types of Mortgage Life Insurance
by Kyle J. Digiacomo
The simple definition of mortgage life insurance is a death benefit that pays off the home loan. If you are concerned about how your family will be able to pay the mortgage in case of your death, this will be interesting to you.
There are two different kinds of mortgage life insurance mortgage broker in calgary. For most borrowers, decreasing life is perfect since the policy amount goes down in conjunction with the amount of the mortgage outstanding alberta mortgage rate. This reducing death benefit permits the insurance premium to be kept at a reasonable level. Most mortgages are paid down a little at a time each month, so you do not need the same amount of insurance at the end of the mortgage that you did at the beginning. Initially, the amount of the policy should be in line with the outstanding balance on the home loan and go down according to the mortgage balance, so that upon death, the policy is for an amount that is enough to pay off the balance on the loan.
This kind of policy merely covers the insured if he dies while the policy is in force. If the policy expires, it then becomes void, and there is no surrender value and the insured gets nothing if he is still living at the end of the term of the policy. The sole purpose of this kind of insurance is to pay the home loan.
Some kinds of mortgages require a level term insurance policy instead. The policy is the same level, but the term is based on the maturity of the mortgage. A thirty year home loan will have a thirty year term policy, a fifteen year home loan, a fifteen year term policy, and so on. Nothing changes about the benefit, as happens with a decreasing term life insurance policy. Since the mortgage goes down each month, there are often funds left over after the repayment of the mortgage.
If you have a home loan whose balance stays the same during the whole time, this is perfect solution. Since the amount of the loan stays the same, the amount of the policy stays the same for the term of the policy.
This means that there is the same amount paid to the beneficiary no matter when the policy is activated. Just as with decreasing term life insurance, there exists no surrender value and the insured receives nothing if he is still alive at the end of the life of the policy.
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