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Homeowners’ typically insure their mortgage and/or credit line debt with the lending institution which sells creditor insurance. This ensures that the indebtedness would be paid off upon death of the debtor. An alternative route is to purchase a life insurance policy when signing the mortgage papers. Evaluate the following questions when considering buying mortgage life insurance through a lending institution.
The lending institution’s life insurance death benefit is generally limited to the amount left owing on the mortgage (according to its amortization schedule). Conversely, if healthy, most people can purchase an amount well over their home mortgage debt. An increased death benefit could cover multiple liabilities such as increased debt resulting from fluctuating lines of credit, credit cards, or home renovation loans with any creditor.
Many people like to shop around for lower interest rates and/or unique mortgages. An individual life insurance policy may be kept as long as you wish, for portability from mortgage to mortgage among different lending institutions, or for other life insurance needs; such as if you were eventually to have capital gains taxed on your cottage or a second residence at death. This can also be pre-funded when you own your own more permanent policy.
Unlike creditor insurance that is directed by the creditor to provide protection for the creditor, personally owned life policies allow individuals to tailor their coverage to their specific needs and requirements. Such flexibility could allow for the inclusion of policy provisions that would allow for the purchase of additional insurance regardless of health, the conversion of a term policy into permanent coverage, or a variety of other customizable options to meet individual needs.
Note: Before cancelling or excluding the use of creditor insurance, make certain that you are properly protected with a life insurance policy benefit appropriate to your financial needs. In some cases you may need to assign a life insurance policy for collateral at a financial institution. There may be disability insurance coverage included with your creditor insurance that may be important to acquire or retain. There may also be costs or fees associated with cancelling or replacing an existing policy.
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