Mortgage Insurance and Term Life insurance may seem quite similar in the fact that they can both be designed to pay off debt in the event of a premature or unexpected death. Although they seem alike they have big differences!
Mortgage Insurance offered through your bank or trust company may not be the best choice for you. In most cases, this type of insurance coverage decreases as you pay down your mortgage, yet the amount you pay every month for the insurance remains the same. You cannot convert mortgage insurance into permanent insurance so when your mortgage is paid off the insurance expires. Also Mortgage Insurance is great for the lender because they are listed as the beneficiary of your policy so if anything happens to you the money goes right to the bank to pay off your dept. You may see why your lenders recommend this insurance. It is important to pay off your debts in the event of an unexpected death but people do not know they have other options.
Another option is getting Term Life Insurance to cover your mortgage or other depts. As the owner of a Term Life insurance policy you get to name your beneficiary and they can use the benefit as they see fit. You pay the same amount every month for term life insurance and the benefit amount also remains the same, it does not decrease like mortgage insurance does. The premiums are also generally cheaper than mortgage insurance and are guaranteed to remain the same for the life of the policy! Term life insurance is not directly tied to your mortgage so your insurance does not cancel when you renew or switch lenders or are finished paying off your mortgage. An important aspect of term life insurance is that with most policies you are guaranteed to renew your insurance regardless of your health. So god forbid if you get cancer and would other wise be uninsurable with term insurance you are guaranteed to renew your policy regardless of your health.
After seeing the differences of mortgage and term life insurance it is clear to always shop around and find out about other options! Knowledge is power.