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.
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:
- Buying a term insurance plan to cover the shortfall. Here’s an easy guide to buy term life insurance plan that may help you out.
- Putting your money to buy a mortgage protection insurance
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.