Mortgage Brokers: Life Insurance Experts Too?

Buying a house has been closely linked with buying life insurance, and for good reason. In the past, people had to buy life insurance and assign it to their mortgage lenders so that their debt could be repaid if they died prematurely. While this is no longer the case, the financial burden on those left behind if a mortgage borrower dies remains a concern. This is why mortgage brokers will often recommend life insurance as part of their service.

Mortgage protection insurance, also called mortgage life insurance, is a policy that pays off the balance of your mortgage when you die. The death benefit from a mortgage protection insurance policy typically decreases as you pay off your mortgage, while your premiums stay the same.

Mortgage life insurance vs. term life insurance

Yes, mortgage brokers can offer life insurance products. In fact, for many, the convenience of dealing with one person who can arrange both their mortgage and life insurance is appealing. However, it's important to note that mortgage advisers often have access to a limited number of life insurance companies, which can affect the price and terms available to the customer.

Now, when it comes to mortgage life insurance vs. term life insurance, there are several key differences to consider:

Mortgage Life Insurance:

Mortgage life insurance is a type of insurance that is designed to pay off the remaining balance on a mortgage in the event of the borrower's death. It is typically sold by the mortgage lender or an affiliated insurance company. The main benefit of mortgage life insurance is that it ensures that the mortgage will be paid off, allowing the borrower's family to stay in their home. Additionally, mortgage life insurance is generally easier to qualify for and often does not require a medical exam or extensive health questions. It also features a convenient application process and lower premiums due to it being a form of group insurance.

However, one of the biggest drawbacks of mortgage life insurance is the lack of flexibility. The beneficiary of the policy is the mortgage company, and the death benefit is paid directly to the lender. This means that loved ones do not receive any money and cannot use the benefit for other expenses. The coverage amount also decreases over time as the mortgage balance is paid down, and the policy typically ends if the mortgage is paid off or the lender is changed.

Term Life Insurance:

Term life insurance, on the other hand, is sold by insurance companies and provides a lump-sum benefit to the beneficiaries chosen by the policyholder (usually family members) in the event of their death. The beneficiaries can use the money as they see fit, including paying off the mortgage, covering debts, or paying for living expenses. Term life insurance is typically sold for a set length of time, such as 10, 15, 20, or 30 years, and the premium remains level during the term.

One of the main advantages of term life insurance is its flexibility. The policyholder can choose the coverage amount and length, and the benefit can be used for a variety of financial responsibilities beyond just the mortgage. Additionally, term life insurance is often more affordable, especially for individuals in good health, and the benefit amount remains the same throughout the policy. The policy also remains in place even if the policyholder moves or changes their mortgage lender.

In summary, mortgage life insurance offers the peace of mind that the mortgage will be paid off, but it lacks flexibility in terms of benefit usage and beneficiary choice. Term life insurance, on the other hand, provides flexibility in how the benefit is used and allows the policyholder to choose the beneficiary. It also tends to be more affordable and offers a consistent benefit amount. Therefore, when deciding between mortgage life insurance and term life insurance, it is important to consider one's specific needs and financial situation.

Pros and cons of mortgage protection insurance

Yes, mortgage brokers can also offer life insurance products. Now, here are the pros and cons of mortgage protection insurance:

Pros of Mortgage Protection Insurance

• Guaranteed acceptance: MPI policies are usually issued on a "guaranteed acceptance" basis, which can be beneficial for those with health conditions who would otherwise pay high rates for life insurance or struggle to obtain coverage.
• No underwriting required: MPI plans don't require underwriting, and most policies don't need you to submit a medical exam to qualify for coverage.
• Peace of mind for your family: An MPI policy ensures that your family won't be responsible for paying off your mortgage or losing the house due to foreclosure if you pass away or become disabled.

Cons of Mortgage Protection Insurance

• Extra monthly payment: MPI requires an extra payment every month, which may be stressful if you can't afford the additional expense.
• Limited payout options: The MPI payout only goes toward your mortgage debt. It won't provide your family with money to cover taxes, bills, or funeral costs.
• Alternative policies may be better: If you want an insurance policy that provides a more comprehensive financial safety net for your family, a traditional life insurance policy may be a better option than MPI.
• Potentially not a good deal: The premium remains the same as you make your mortgage payments and pay down the principal, but the death benefit declines as your loan balance decreases.
• Fluctuating premiums: Premiums on MPI policies may only be fixed for the first five years and could spike at any time after that.

Mortgage protection insurance vs. term life insurance

Yes, mortgage brokers can offer life insurance products. However, they may only be able to offer policies from a handful of different companies, which can affect the price and terms available to the customer.

Mortgage protection insurance and term life insurance are two options available to homeowners to protect their mortgage in the event of their death. While both options serve a similar purpose, there are several key differences between the two.

Purpose

Mortgage protection insurance, also known as mortgage life insurance, is designed with a specific goal in mind: to pay off the remaining balance of the mortgage in the event of the policyholder's death. Term life insurance, on the other hand, offers a broader range of protection and can be used to cover various financial obligations, such as large debts, college tuition fees, and final expenses.

Coverage

Mortgage protection insurance covers only the outstanding mortgage balance, and the death benefit is paid directly to the lender. Term life insurance, on the other hand, provides a fixed amount of coverage that can be used for any purpose, including paying off the mortgage. The death benefit of term life insurance is typically paid to the policyholder's beneficiaries, who can then choose how to utilise the funds.

Cost

The cost of mortgage protection insurance is primarily based on the remaining balance of the mortgage, the time left on the loan, and the policyholder's age. Term life insurance considers additional factors, such as age, gender, health, smoking status, occupation, and family history, and usually includes a medical exam as part of the application process. Term life insurance may offer more competitive rates, especially for healthy individuals.

Flexibility

Mortgage protection insurance offers limited flexibility as it is specifically designed to pay off the mortgage. Term life insurance, however, provides flexibility in terms of coverage amount and duration. Policyholders can choose the coverage amount and policy length based on their financial obligations and needs.

Limitations

One of the main limitations of mortgage protection insurance is that the benefit is paid directly to the lender, and there is no additional money provided to cover other expenses or leave cash to beneficiaries. Term life insurance, on the other hand, allows beneficiaries to use the payout for any purpose they choose, providing them with financial flexibility.

In summary, mortgage protection insurance is a specialised product designed solely to pay off the remaining mortgage balance in the event of the policyholder's death. Term life insurance, on the other hand, offers a broader range of protection and flexibility, allowing policyholders to choose the coverage amount and duration based on their financial needs and obligations.

The flexibility of term life insurance

Yes, mortgage brokers can also offer life insurance products. For many, the convenience of dealing with one person who can arrange both a mortgage and life insurance is appealing. However, it's important to note that mortgage advisers often only have access to a handful of life insurance companies, which can affect the price and terms available to the customer.

Now, here is the content on the flexibility of term life insurance:

Term life insurance is a flexible option for those seeking life insurance. It provides the policyholder with the ability to adjust their coverage based on their needs and changing life circumstances. This type of insurance is ideal for those who want substantial coverage at a low cost.

Term life insurance is a type of insurance that provides a death benefit for a specified period. Once the term expires, the policyholder can either renew it, convert it to permanent coverage, or let it lapse. The policy guarantees a stated death benefit to the insured's beneficiaries if the insured person dies during the specified term.

Additionally, term life insurance is well-suited for people with growing families. It can provide the necessary coverage until children reach adulthood and become financially independent. It is also beneficial for older individuals, as it can help cover expenses such as funeral costs and outstanding debts.

Another aspect of its flexibility is the option to convert term life insurance into whole life insurance, which offers lifelong coverage. This conversion feature provides individuals with the ability to extend their coverage if their circumstances change or if they want the added security of permanent insurance.

Term life insurance also offers flexibility in terms of cost. The premiums are generally lower compared to other types of insurance, such as whole life insurance, making it a more affordable option for many individuals and families. The cost of term life insurance is typically based on the policy's value, age, gender, and health of the insured, among other factors.

Furthermore, term life insurance provides flexibility in how the death benefit is utilised. Unlike some other types of insurance, the beneficiaries of term life insurance are not restricted in how they use the payout. They can choose to settle the deceased's debts, cover funeral costs, or use the money for other financial needs.

In summary, term life insurance offers flexibility in terms of coverage duration, conversion options, cost, and how the death benefit is utilised. This flexibility ensures that individuals can obtain the necessary coverage for their specific needs and make adjustments as their circumstances change over time.

How to check if you are getting the best life insurance advice

Check the type of life insurance advice you are getting

Firstly, you need to check whether your mortgage adviser is tied to one insurance company, a panel of insurance companies, or whether they can access the whole market for life and sickness insurance. This is important because tied brokers have limited options and may offer you a more expensive deal than you would find on the open market.

Check your adviser is asking the right questions

A good adviser should ask you a number of personal details before making a recommendation. These include:

• Dependents: It is vital to know who will be impacted by your death or illness. This includes children to whom you pay maintenance and even elderly relatives who may rely on your care.
• Debts: Your adviser should ensure that a life insurance policy can pay off any debts that will become a burden in the event of your death or illness, in addition to the mortgage you are arranging.
• Employer benefits: If your employer provides a death-in-service benefit, this could reduce the life insurance you need to pay for. The amount and duration of your sick pay will also be important in working out if you need insurance to cover your bills if you become injured or ill and can't work.
• Occupation: Details of your work environment and tasks are important because they can impact your life and sickness insurance application, especially if they pose extra risks. Without this information, your adviser won't be able to source the correct products or insurance companies for you.
• Health: Your adviser should check your past and present health as well as any family history of health conditions to ensure that you apply to the right life insurance company. Not all companies make decisions in the same way, and some will be more attractive for particular health conditions.
• Existing insurances: A good adviser will be keen to ensure that you keep any existing insurances that are providing good value for money before they replace them.
• Wills and estate: Your adviser should ask about the details of your will to ensure that they can provide you with appropriate advice when arranging the Trust for your life insurance.

Speak to a specialist life insurance adviser

If you are unsure about the advice you are getting, it is recommended that you speak to a specialist life insurance adviser. This is free to do and will ensure that you are getting the best advice for your personal circumstances.

Frequently asked questions