06 September 2008

Buying Mortgage Insurance? Lender vs Independent

I met with an insurance broker last night and she raised some interesting points while we were talking about mortgage (life) insurance. Most people buy insurance on their life when they get a mortgage to protect their loved ones in case of death of mortgagor. Usually the life insurance - also called mortgage insurance - is offered by the mortgage lender when the borrowers sign the mortgage papers. Before you accept that insurance policy from your mortgage lender talk to an independent insurance advisor. Here is a little comparison based on my conversation with the insurance advisor:

Lender's Insurance	Insurance Company
Lending institution owns the policy	You own the policy
Lender is the beneficiary	You are the beneficiary
The benefit is used by the lender to pay the balance of mortgage	You decide who receives the benefit
If you move you mortgage to another institution, your coverage may change	Your coverage remains unchanged even if you switch lenders
You may lose coverage when your mortgage is paid or is in default	You coverage remains the same even when you are in defult of your mortgage payments
Your coverage is based on the mortgage amount and often declines with the mortgage balance	Your coverage remains same even when your mortgage balance declines

This comparison if for your information only. Please consult an insurance professional before buying any kind of insurance as I am no insurance expert.