with IFSG
Cost Savings in Mortgage Life Insurance
It’s important to understand that directly comparing the “typical savings” between bank-issued mortgage life insurance and personal life insurance (term life) obtained through a broker can be complex. However, I can highlight key cost differences and general trends:
Key Considerations
Mortgage Life Insurance
(Bank-Issued)
- Often has level premiums, meaning you pay the same amount regardless of your decreasing mortgage balance. This can result in you overpaying for coverage as your mortgage debt shrinks.
- Tends to be more expensive overall compared to term life insurance.
- Premiums are often based on age ranges, not individual health assessments, which can be costly for healthy individuals.
Personal Life Insurance
(Term Life - Broker)
- Premiums are based on individual factors like age, health, and lifestyle, often resulting in lower costs for healthy individuals.
- Allows for level or decreasing coverage, providing flexibility to match your needs.
- Brokers can shop around for the best rates from various insurance providers.
General Savings Trends
- Numerous financial experts and sources indicate that term life insurance obtained through a broker is generally less expensive than bank-issued mortgage life insurance.
- The savings can be significant over the life of a mortgage, potentially amounting to thousands of dollars.
- PolicyMe, and other financial sources, have stated that term life insurance can be significantly cheaper than mortgage life insurance.5
Reasons for the Cost Difference
Underwriting
- Term life insurance involves individual underwriting, which assesses your risk and adjusts premiums accordingly.
- Mortgage life insurance often has simplified underwriting, leading to higher premiums to cover a broader range of risks.
Decreasing Coverage vs. Level Premiums
- Mortgage life insurance premiums remain level, even as coverage decreases.
- Term life insurance allows for adjusting coverage and premiums.
Beneficiary
- Mortgage life insurance pays the outstanding balance to the lender.
- Personal life insurance pays the death benefit to your chosen beneficiary, allowing them flexibility.
Important Considerations
- Individual circumstances vary, and costs can differ significantly.
- It's crucial to obtain quotes from multiple sources and consult with a licensed financial advisor.
I hope this information is helpful.