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Should You Buy Mortgage Protection Insurance Or Life Insurance?

dateKnowledge Centre Team dateApril 16, 2021 views121 Views
Should You Buy Mortgage Protection Insurance Or Life Insurance?

Deciding on which insurance to buy requires thorough evaluation and comparison between 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.

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

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.

How does mortgage protection insurance work?

While taking out a mortgage, the lender will ensure that you have purchased mortgage protection insurance. In case you are unable to return the money due to an unfortunate incident, then the money would be paid off to the lender with the help of the insurance.

The lender, before lending, should ensure that by law, the borrower is covered by the mortgage protection insurance. But there are a few exceptions where the lender might provide a mortgage even if you do not have mortgage insurance. This might happen only if:

  • 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 different types life insurance plans available in India.

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Difference between mortgage protection insurance and general life insurance

General life insurance, such as term life insurance, helps in paying off your mortgage and additionally offer 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.

On the other hand, mortgage protection insurance tends to cover only the remaining principal balance of the mortgage in the event of your death. This insurance does not include additional money, payouts to cover other expenses, or benefits for your beneficiaries and expires once the mortgage payment is completed.

Best life insurance plans offer many benefits, including mortgage insurance. The notable difference is that the money paid off with the help of mortgage protection insurance either goes directly to the bank or the lender.

In case of life insurance, after the mortgage money is paid off to the lender, beneficiaries also receive a certain tax-free amount of money that is the death benefit which can be used for any other purposes such as rites and burial costs, paying off the remaining debts, child care costs, living expenses, and more.

A mortgage protection insurance will not be ported automatically if you change the mortgage provider. If you try moving the mortgage to another bank, you will be required to prove yet again that your health is in good shape.

Whereas with life insurance, your mortgage can be transferred even if you switch to another company and the policy will be intact. You don’t have to go through any health inspection again to be insured.

In terms of flexibility, on purchasing life insurance, your beneficiaries will have the flexibility to pay off the mortgage as well as use the benefits to look after other financial matters after you die. Life insurance also allows you to choose the amount of insurance coverage you require and also the tenure. But with mortgage protection insurance, purchased particularly through a bank, you do not get the flexibility to change the coverage, and you will be able to cover only the mortgage.

Which one should you buy?

Choosing the right insurance plan depends on the kind of features or benefits you are looking for. There are plenty of life insurance plans available, and you can choose one that’s the most favorable to you, depending on your financial circumstances.

If you do have an existing life insurance plan but you think that it will not be enough for paying off your debts, then you may consider:

Opting for the right plan will benefit you and your dependents. Based on the requirements of your family and financial goals, make an informed decision before choosing between mortgage protection insurance or life insurance, whichever is most suitable.

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Frequently Asked Questions (FAQs) for Life Insurance

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age:It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chances of contracting diseases is low. Young people also opt for policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender:The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits:The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term:Policy terms are also taken into consideration by insurers while deciding the premium amount. Policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation:The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physicianâ s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence. There are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: An insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the policy, the insurance companies generally pay 80% of the total premiums paid.

Buying life insurance online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. Online insurance policies also offer higher benefits. Customers should, however, buy online policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one policy to increase the cover or avoid claim rejection. In case of multiple policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In the case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in the case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term. The family receives the death benefit. In the case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment options are chosen the policy works as a source of regular income.

It is a popular misconception that life insurance is only for accidental deaths. A term life insurance plan like iSelect also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy life insurance in your early 20s because it’s is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy life insurance at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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