The month of September is celebrated as “National Life Insurance Awareness Month’. It awakens us to the need of having adequate insurance coverage for the financial stability of our family. Purchasing a home is an important decision and most of the times, may involve mortgage to ease your financial burden. Whenever you purchase a home with the help of mortgage, it is always advisable to secure your valuable property in times of any unforeseeable circumstance such as an illness or death so that you or your loved ones are not forced to part with your dream home or, at least are in a secure position to pay off the debts and other financial obligations. To safeguard themselves and their loved ones from undue financial burden and distress, most people opt for mortgage insurance. But while planning for mortgage protection, it is vital to choose the right institution which ‘actually provides’ financial protection as well as client friendly features; providing better value for invested money as well as safety of financial assets.

Since banks are widely accepted reliable financial institutions which people extensively use for their financial needs, while procuring mortgage from these financial institutions, people feel inclined to buy mortgage insurance offered by them. Little do they realise that the very trusted financial institutions may not be the best source of every kind of financial need. It is imperative for the client to be aware of the pros and cons of insurance plans offered by different institutions so that he/loved ones may make the wise decision to get maximum benefit in times of need without falling into any financial trap.

Besides banks/financial institutions, the other major institutions which offer mortgage insurance are – life insurance companies. As an insurance advisor having years of experience in this field, I would always advise my clients to buy mortgage insurance from life insurance companies if they want peace of mind in future. The reason is not simply because I am working in this field; but is rather based upon considerable evidence which explicitly shows that insuring mortgage through us is in every way much more beneficial than insuring through other financial institutions.

Following comparison between the features of these institutions will help you identify as to which of these institutions caters better to your needs:

Who is the owner?

The mortgage insurance policy done through us (insurance companies) is ‘owned by the insured’ (you). It can only be cancelled by you-either by giving in writing or by non-payment of premiums. But in case of banks/ financial institutions, the policy is a group policy and you have no control over it. Strange though, but yes; you are not the owner.

Who is the beneficiary?

In case of mortgage insurance through financial institution, the lending institution is the beneficiary instead of your spouse or family member; while in case of insurance company, your spouse or family member is the beneficiary. Thus, insurance company allows the spouse/family member exercises control over the use of financial help. If the spouse/family member can pay off the rest of the instalments, she/he can use this financial help as per her/his need. Otherwise, he can use that whole amount or a portion to pay off the mortgage. But in case of financial institution, the money gets directly paid to the lender to pay off the debt; the spouse/family member has no control over this money and in case of absence of any additional income, may be left with no choice but to sell the home.

Level of clarity about terms of mortgage

Another major difference which makes purchase of mortgage insurance through Life Insurance Company more desirable and secure is- the clarity of terms of insurance. Underwriting is done at the initial stage, and once approval is given, the protection is irrevocable, the only underlying condition being- payment of premiums. You don’t need to re-qualify at a later stage. But the disadvantage with the bank/financial institution is that underwriting is not done at the initial stage. They do post-claim underwriting, and there are chances that you may be denied the claim. Does it make any sense?? – Certainly not. But yes, this is true! It makes you vulnerable during times of need. And this fact is based upon real marketplace investigations.

Discounts for healthy people

Mortgage insurance through us grants healthy people lots of discount on the premium. You can use this saved money for any purpose, including fast payment of mortgage but financial institution does not offer this advantage; there is no waiver/discount for people in good health. The premium amount is the ‘standard amount’ for everybody- in good health or ill health.

Guarantee for premiums

The insurance company guarantees the same amount of premium throughout the period of insurance. But for policy bought through bank/ financial institution, there is no guarantee of the amount of premium. It can increase depending upon the claims experience of the insurance provider of the lending institution.

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Sandeep Ahuja