Difference Between Life Insurance and Mortgage Insurance

By Atul Yadav
  | Published: 26 October 2021

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It is of prime importance for individuals to secure their families during unforeseen events. They need to be prepared beforehand should the worst happens. That’s why life insurance is so important as it provides financial security to the dependents and the ability to tackle the devastating situation after the demise of the sole earner. The beneficiaries can use the insurance benefits to meet their daily expenses or to pay previous debts. If the loans are huge, a major portion of death benefits is used in loan repayments and as a result, the family suffers. Hence, a need for mortgage life insurance arises. 

Both life insurance and mortgage life insurance provides financial security to the dependent family during untimely events. However, each has been designed to fulfil different purposes.

What is the difference between Life Insurance and Mortgage Life Insurance?

The basic difference between life insurance and mortgage life insurance is the purpose they are designed for. While life insurance secures your family’s financial needs, a mortgage life insurance pays specifically against your mortgage. 

The other main difference includes to whom the insurance benefit is paid. In a life insurance plan, the beneficiaries are the dependent members of the policyholders. On the other hand, mortgage insurance pays the death benefits directly to your lender. Mortgage life insurance usually carries a higher premium rate compared to term life insurance for the fact that policyholders are exempted from medical examinations. Also, your premium will likely remain the same over the mortgage life insurance tenure.

Mortgage insurance coverage depends on the debt amount and decreases with every debt repayment. While in the case of life insurance, your beneficiaries receive the guaranteed death benefits should the worst happens. 

Everyone faces a different financial situation and needs to consider various options accordingly. To help them out, we have detailed the differences between life insurance and mortgage insurance.  

What is Life Insurance?

In broader terms, life insurance is an agreement between the insurer and the policyholder where the insurer provides financial security to the dependent members of the insured. In exchange, the policyholder needs to pay a premium. While some life insurance offers protection for a set period known as term insurance, individuals can secure their whole life with whole life insurance. The term insurances are one of the most affordable options with lower premiums and competitive death benefits.

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What is Mortgage Life Insurance? 

Mortgage life insurance is a type of term plan fabricated to repay the mortgage debt and the related costs if the borrower dies during the active repayment period. The coverage amount reduces with every passing year depending on the remaining loan amount. If the borrower dies during the mortgage life insurance tenure, the dependent family won’t have the burden of debt repayment. The lender continues to receive the loan instalments as the part of borrower’s death benefits. 

Mortgage life insurance comes in two variants. One is decreasing term insurance, where the coverage amount decreases with the size of the outstanding mortgage, and another is level term insurance, in which the coverage amount doesn’t decrease. Individuals need to select the mortgage insurance according to their requirements. 

What Should You Buy? Life Insurance or Mortgage Insurance?

Every individual has a different financial requirement. Depending on their needs, they can opt for one from the available insurance options. They need to consider what and whom are they protecting. If you have a spouse and children who depend on your income, a life insurance policy can be a better option. It provides your family with the financial security to continue their life with a lesser burden when you are not around. 

If you have mortgage debt and your family would not be able to keep up with debt repayments, you may consider buying mortgage life insurance. It will remove the excess load of debt repayment so that they can cope with the situation. 

Regardless of the policy, buying a life insurance or mortgage insurance plan can provide financial security to your loved ones after your demise, providing you peace of mind. 

What are the Key Benefits of Mortgage Life Insurance?

Mortgage life insurance comes with numerous benefits. If you are confused about whether to buy mortgage insurance in the UAE or not, consider the following benefits - 

  • The mortgage life insurance requires minimal underwriting. 
  • The policyholder doesn’t need to undergo a medical examination before buying a mortgage life insurance. 
  • The mortgage life insurance also comes with several add-ons. For example, you can choose a mortgage payment protection plan which secures your repayments if you are still alive but critically ill or injured to the extent that you can no longer earn a living.
  • You can also opt for critical illness cover in mortgage life insurance. It won’t pay for the treatment but would cover your loan repayments. 
  • With mortgage life insurance, your family will always have a place to live even if you die or you are unable to work due to illness.  

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Conclusion

Life insurance and mortgage life insurance both aims at providing financial security to the policyholder’s family. However, they have different purposes. Life insurance secures your family, while mortgage insurance secures your mortgage loan repayment. You need to consider your financial requirements and your family’s ability to pay the mortgage before deciding to buy one of the plans. Also, thinking about your priorities can help you in choosing the best life insurance in UAE.

Atul Yadav
Atul Yadav0 Post

Atul has had a flair for writing ever since he started writing essays in school, which inspired him to subsequently opt for a career in writing. He loves to write about places he's been to (the list is endless) and financial products that can help people make a real change in planning their finances better.