Should You Buy Mortgage Protection Insurance Or Life Insurance?

Should You Buy Mortgage Protection Insurance or Life Insurance?

Confused between mortgage protection insurance and life insurance? Learn the key differences, benefits, and which one is the right fit for you.

Written by : Knowledge Centre Team

2025-07-16

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10 minutes read

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Choosing a suitable insurance plan requires a thorough evaluation and comparison of various life insurance plans available. Life insurance helps you to put your hard-earned money securely and receive its returns later on in life. The returns received can be used for various purposes, be it for looking after your family’s needs, paying for your child’s education, or leading a peaceful life after retirement. On the other hand, mortgage protection insurance plays a rather different role.

Key Takeaways

  • Life insurance provides financial support to your family beyond just repaying the mortgage.

  • Mortgage protection insurance strictly covers your home loan, with payouts going directly to the lender, not your family.

  • Life insurance offers greater flexibility, portability, and control over funds, while mortgage protection insurance is limited in scope.

  • If you already have a life insurance policy but think it's insufficient, consider topping up with a term insurance plan or supplementing with mortgage protection.

  • Always align your choice with your financial situation, goals, and family’s future needs.

Mortgage protection insurance is a policy that primarily focuses on paying off the borrowed money if the borrower fails to pay the EMI due to sudden death. In the case of a joint mortgage, all members who have taken out this policy must have mortgage protection insurance.

The duration of this insurance depends on the tenure of the mortgage you have signed up for. For instance, if you have taken out a mortgage for, say, 12 years, mortgage protection insurance should be stretched that long as well.

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How Does Mortgage Protection Insurance Work?

While you takeout a mortgage, the lender will typically require you to have mortgage protection insurance. This ensures that if you are unable to return the money due to any unfortunate incident, then the money would be paid off to the lender with the help of the insurance.

While it's not legally mandatory, some lenders prefer that borrowers have mortgage protection insurance before approving a loan. However, in certain cases, they may still proceed without it, such as when:

  • The borrower is over the age of 50

  • The borrower is investing in a property

  • The borrower is unable to purchase the insurance

  • The borrower holds life insurance instead

Another important point to keep in mind is that this insurance coverage will not cover the repayments if you are unable to pay due to dismissal from work, disability, or illness. Insurance for such cases is different, and you can choose one from the different types of life insurance plans available in India that specifically address these risks.

Benefits of Mortgage Protection Insurance

Difference Between Mortgage Protection Insurance and General Life Insurance

General life insurance, such as term life insurance, can help you pay off your mortgage and additionally offers other benefits to your beneficiaries along with a death benefit, which is a sum that is paid to your loved ones in the event of your death.

Mortgage protection insurance, on the other hand, is limited to covering only the outstanding mortgage balance in the event of your death. It doesn’t offer any additional payouts for other expenses or financial support for your beneficiaries, and the coverage ends once the mortgage is fully repaid. Let us understand the differences with the help of a comparison table. 

Aspect

Life Insurance

Mortgage Protection Insurance

Coverage

Covers mortgage and provides additional financial support

Covers only the remaining mortgage balance

Payout Recipient

Beneficiaries receive the death benefit

Lender or bank receives the payout directly

Additional Benefits

Tax-free lump sum can be used for rites, burial, debts, child care, living expenses, etc.

No extra funds for other expenses or beneficiaries

Portability

Can transfer mortgage to another lender without affecting the policy; no new health checks needed

Not automatically transferred; requires requalification and health checks if mortgage provider changes

Flexibility

Lets you choose coverage amount and tenure; beneficiaries can use the money as needed

Covers only the mortgage; limited flexibility, especially with bank-purchased plans

Control Over Funds

Beneficiaries decide how to use the payout

Funds are used solely to repay the mortgage

Which One Should You Buy?

The best insurance plan for you depends on your financial situation and the kind of protection you're seeking.

If you want broader coverage, something that not only pays off your mortgage but also supports your family with additional funds, life insurance is the better choice. It gives your loved ones flexibility and financial support beyond just paying off debt.

On the other hand, mortgage protection insurance is more limited in scope. It’s designed specifically to cover your mortgage balance if something happens to you. The payout goes directly to the lender, and your family does not receive any extra funds.

If you already have a life insurance policy but worry it may not be enough to cover all your debts or expenses, you can consider:

  • Buying a term life insurance plan to fill the gap. Term plans are affordable and provide substantial coverage for a specific period. [Here’s a simple guide to help you choose the right term life insurance plan.]

  • Purchasing mortgage protection insurance to secure your home loan specifically.

No matter what you choose, the key is to align your insurance coverage with your family’s needs and long-term financial goals. Take the time to evaluate both options and pick the one that gives you and your loved ones the peace of mind you deserve.

Wrapping Up

Insurance is ultimately about being prepared and ensuring peace of mind. Whether you want to protect your home or provide financial support to your loved ones, both mortgage protection insurance and life insurance have their own roles to play. Mortgage protection insurance focuses only on paying off your home loan. It is straightforward and may work well if your main concern is making sure your family is not burdened with mortgage payments.

Life insurance offers wider protection. It allows your beneficiaries the flexibility to use the payout for various needs, including but not limited to mortgage repayment, daily expenses, education, and emergencies.

When deciding between the two, consider your overall financial responsibilities, your family’s future needs, and your current coverage. In some cases, a combination of both may offer the best support.

What matters most is choosing a plan that aligns with your long-term goals and gives your loved ones the security they deserve.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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