Mortgage Insurance Vs Life Insurance in Case of Home Loan.

[Karthik]

Hi Experts,

When a purchaser borrows a home loan from bank, the bank can buy a mortgage insurance to be safe so that if the purchaser defaults on payments/dies then insurance company pays the sum insured to bank.

Similarly the bank can ask the purchaser to buy a term life insurance and make bank as the nominee.

In both cases the bank is safe as its money is protected, so in this scenario there is no difference between mortgage insurance and term-life insurance.

Can you please let me know whether my understanding is correct ?

Regards,
Karthik

 

[InsDoc]

Yes, you are correct. What most people call "Mortgage Insurance or Mortgage Protection Insurance" is simply term life insurance. In years gone by there were many company's that had a decreasing term policy that the death benefit decreased each year so that whenever the insured died the death benefit would be equal to the amount owed on the mortgage. However, most Mortgage Protection Insurance policies these days are level term policies.