A lot of people don’t understand the difference between life insurance and mortgage protection insurance. This article will help you find what the concepts of life insurance and mortgage insurance are all about. It will also educate you about the major differences between mortgage protection and life insurance and where they are applicable. Once you know exactly what they are, you can make an informed decision when taking out a mortgage and when applying for insurance for yourself. You will also know the options that you have between different types of insurance and which option works best for you. There is a variety of online channels that you can use for this purpose.
What is Life Insurance?
Let’s begin with the basics. You need to understand what life insurance is and how it works so you can choose your coverage.
A life insurance is basically a contract between you and the insurance company. The insurance company agrees to give you a lump-sum payment against a number of premium payments that you make over time. It will be delivered to your beneficiaries in the case of your death. You can choose different types of life insurance based on your goals and requirements. You can choose a term life insurance if you are looking for insurance for a specific period of time or you can get permanent life insurance that will cover you for your entire life. These can be whole or universal life insurance.
TYPES OF LIFE INSURANCE
There are many varieties of life insurance that you can opt for. Here we are going to share some of the most common types for your information.
TERM LIFE INSURANCE
If you need financial protection for a limited period of time, then term life is the ultimate solution for you. You can have this protection for any number of years like 10 years or 20 or so on. There are a number of options that you can go for but the usual term life policy dictates that you will pay the same amount of premium every month of the term that you have selected. After the time period that you selected has successfully completed, you can opt for further coverage. It will not be at the same amount of premium and you will have to pay a higher premium rate. The premium rates for a term life insurance are generally lower than permanent life insurance premium rates.
WHAT NEEDS DO IT MEET?
If you are facing a loss of potential income during your life, then term life insurance can help you cover those financial losses. Term life insurance can easily become your safety net during that time. You can rest assured that your family needs will be met and they won’t have to live in financial distress during this time. These financial needs can be anything from paying off the mortgage, paying for your children’s tuition or college fee or keeping your business running. Just know that life insurance benefits are paid in a lump sum amount and not on a monthly basis or regular payments.
UNIVERSAL LIFE INSURANCE
If lifetime coverage is what you want, then you can opt for universal life insurance. It is a permanent term insurance that covers you for your lifetime. The policies of universal life insurance are not like whole life insurance. They are flexible and enable you to change your premium payments throughout your life. If you compare universal life insurance and term life insurance, you will find that the premium rates for universal insurance are higher than term insurance. People usually use universal life insurance so that they can have a flexible plan for their future and to transfer their wealth to their loved ones and beneficiaries. You can also use universal life insurance to compensate for any long term income replacement if you think that your needs will extend your working years. There are many types of universal life insurance. Some give you guaranteed death benefit coverage and others give both death benefits as well as building cash value.
WHOLE LIFE INSURANCE
If you need coverage for your entire life, then you should go for the whole life insurance. As it covers your entire lifetime, it has premium payments that are higher than term life insurance. The whole life insurance policies are typically fixed. With whole life insurance, you get the benefit of having an insurance policy that has a cash value. This value provides you with a savings factor over time.
WHAT IS MORTGAGE PROTECTION INSURANCE?
As life insurance guarantees payment in case of your death, mortgage protection offers you coverage for your mortgage bills whether you need it for a temporary basis or a longer period of time. In case you lose your job or you become disabled due to some injury, accident, or some ailment, it can cover all your mortgage bills while you recover or get your job back. In case, you pass away, the mortgage protection insurance will pay off your entire loan. The policies vary from agency to agency so you should find out what the insurance company is offering before finalizing any policy.
If you are taking out a mortgage, more often than not, your lender will offer you some type of mortgage protection insurance. You can opt for it or not based on whether you like the offered policy. It is not mandatory as most insurance agencies as well as independent sellers can offer you the same thing at even better rates and terms. Based on the premiums, prices, and coverage, you can shop around till you find the mortgage protection insurance that fits the bill.
Just like life insurance, the cost of mortgage protection insurance varies from person to person. This cost is dependent on things like your age, health and other things like the current value of your home, the payment amount that you have said to pay regularly, and the amount of mortgage that is up for the current payoff.
BRINGING IT ALL TOGETHER
There are various benefits of mortgage protection insurance. These include a high acceptance rate. When you apply for mortgage protection, there are only a few reasons why someone would reject your claim. Unlike life insurance where some people might have trouble getting life insurance because of pre-existing medical conditions or their age, mortgage protection insurance doesn’t have any such problems. Also, it provides you with peace of mind. You never know what you’re going to need and if you have mortgage protection insurance, you are satisfied that you have a safety net if you ever need one.
Nobody knows what future beholds. It is always wise to guard against any future loss or disability and invest savings in an insurance or mortgage plan that serves the purpose when the chips are down.