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How is Mortgage Insurance & Term Life Insurance different?

Blog by Diane Cardoso | June 14th, 2011

Have you recently purchased a home and been offered "mortgage insurance from the Lender?" You may want to understand the differences of mortgage insurance or term life insurance before making your final decision on which one to choose for your home purchase.  Mortgage insurance is designed to pay the balance owing on your mortgage if you pass away.  Term Insurance can offer more flexibility and typically has a lower cost.  As you pay down your mortgage, the monthly premiums for mortgage insurance remain level, which means you pay more for the insurance as the mortgage balance reduces. Term life insurance allows you to to select any amount and duration of coverage, and the premiums and insurance proceeds remain constant.
Mortgage insurance proceeds are payable to the Lender, while Term Insurance proceeds are payable to your Beneficiary.  Your beneficiary can decide what to do with the proceeds.  The major advantages of Term Life Insurance vs. Mortgage Insurance are flexibility and better value for your premium dollar.   To find out which option is to your best advantage, speak with your local insurance agent or your mortgage broker/banker prior to purchasing your home.