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Mortgage life insurance versus personal life insurance

By J DOBBELSTEYN November 13, 2012 · Updated 11:02 AM
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If you're arranging a new mortgage or moving an existing one to a new lending institution, you will probably be offered mortgage insurance as part of the package.

Protecting what is likely the largest investment you will ever make is always the right choice, but is the lender's insurance offer the best choice for you?

You do have another option that will protect your family's dream home and their finances should you die. That option: a personal life insurance policy that you arrange to suit your unique needs.

Let's look at the differences between mortgage life insurance offered by most lending institutions and personal life insurance.

Lending Institution Mortgage Life Insurance:

• Usually, non-convertible term life insurance with no cash value, no premium flexibility or ability to move to a permanent life insurance plan if your needs change.

• Usually covers the exact amount of your mortgage. Coverage decreases as mortgage is paid down and you have no coverage when it's paid off.

• Lender owns the policy. If you find a better mortgage rate elsewhere, you may have to re-qualify medically.

Lender can change or cancel the policy at any time.

• Your beneficiaries have no choice about how to use the funds – the lender automatically pays off the mortgage when you die.

• Your beneficiaries have no choice about how to use the funds – the lender automatically pays off the mortgage when you die.

• The cost per thousand dollars of coverage generally increases every year, while coverage decreases.

Personally Owned Life Insurance:

• You select the plan that meets your needs. If you decide to start with a term plan, you can convert it to a permanent plan at any time. This is especially important if your health changes because you can make the conversion without having to re-qualify medically.

• You select the plan that meets your needs. If you decide to start with a term plan, you can convert it to a permanent plan at any time. This is especially important if your health changes because you can make the conversion without having to re-qualify medically.

• You own the policy and have the freedom to switch lenders without jeopardizing coverage.

Your premiums and benefits are guaranteed for the life of the policy.

• Your beneficiaries can choose the funds as they wish – to pay off the mortgage and/or for other pressing financial reasons.

• You choose the type of insurance and premiums that suit your needs and budget.

A personal life insurance plan gives you affordable, flexible coverage that you control and peace of mind knowing your home and family are protected come what may.

Even if you have obtained mortgage insurance from a bank or other lender, it is not too late to put personal life insurance into place. Ask for professional advisor for an insurance needs analysis and discuss the right mortgage life protection, and other financial strategies, that work for you.

J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.