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Usually when you set up a life insurance plan you can choose the amount of cover that you wish to set up – and this life insurance sum can be used for whatever you’d like (covering a mortgage or debt, providing for family, etc). However another approach is to select ‘mortgage life insurance’. As this name suggests, this is designed specifically to cover your mortgage – for example if your mortgage equals $300,000, when you take out the insurance, your cover amount would be exactly equal to this. This kind of life insurance policy can have some drawbacks – we’ll look at a couple of the most significant. First, mortgage life insurance tends to be very inflexible. The sum is based on your mortgage, and commonly you can’t insure more than this. This might be OK if your mortgage is your sole concern, however most people have other considerations too – for example other debt, children’s education and family income replacement, funeral costs etc. With a normal life insurance plan, adding cover for these is easy, however with mortgage life insurance it might not be possible. The second point is that mortgage insurance usually costs the same as normal life insurance, however it often lacks some of the built in features that life insurance has. One important example is that life insurance will often have built in ‘future insurability’, which gives you the ability to increase your cover (with no health assessment) if you experience certain life events (like having a child, taking on debt etc). This kind of feature is important as it gives you the ability to “future-proof” your cover. Mortgage life insurance often lacks this kind of feature, meaning that your policy might not include as much ability to alter it in the future if you need to. So, if you’re considering setting up life insurance for your mortgage, and are offered mortgage life insurance instead, take a close look at the policy – you might be better off with a “normal” life insurance plan. http://www.inform.co.nz/health-insurance/
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