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The Differences of Mortgage Insurance and Life Insurance

Key Points

  1. What is mortgage insurance?
  2. What is life insurance?
  3. What are the differences between mortgage insurance and life insurance?
  4. Which one should I get: mortgage insurance or life insurance?
  5. How much insurance should I get?

The differences between mortgage insurance and life assurance are often misunderstood, but we’ll help you understand what each one does. Mortgage insurance is a type of life insurance that pays off your home loan in the event of your death or total permanent disability. Meanwhile, life insurance will undoubtedly pay out to your family at your death. You can obtain life insurance without first purchasing a house.

As a result, mortgage insurance is related to your home loan, and some lenders may require it even if it is not required. Life insurance is more concerned with protecting your family in the future and easing the financial burden on your family if the breadwinner passes away.

What is mortgage insurance?

Some of us wonder if MRTA and MLTA mortgage life insurance are the same. Well, the answer is that it is not! Both of these elements have the same concept, which is life insurance, but the characteristics of both are pretty different.

Mortgage Reducing Term Assurance (MRTA) is a type of life insurance that will help to settle all the outstanding balances on your home loan in the event of death or total and permanent disability (TPD). Meanwhile, Mortgage Level Term Assurance (MLTA) is a type of life insurance, but it is a type of repayment of your outstanding home loan as well as there is a guaranteed cash value.

For instance, if you passed away and had purchased an MRTA, the payout goes directly to the bank to settle your outstanding mortgage loan. However, your family will not gain anything from it because, with this type of mortgage, the bank will act as the beneficiary of an MRTA. The bank will help you settle all the outstanding amounts on your property.

Meanwhile, the MLTA mortgage is slightly different from the MRTA mortgage. With MLTA, you can nominate your own beneficiary and not just will the payout settle your home’s outstanding, but your beneficiary will also receive a cash benefit. The best thing about MLTA is that it can be transferred to your new property or refinanced, unlike MRTA, whereby you can’t do it.

What is life insurance?

Life insurance is not the same as a mortgage. In the event of your death during the policy term, life insurance pays your loved ones a sum of money. The premium for life insurance is also determined by the policy value, age, gender, and health. There are two types of insurance under life insurance: Term Life Insurance and Whole Life Insurance. Both serve as insurance and protect your family, but there are distinctions between them. We’ll go over it again below to make sure you understand.

What are the differences between mortgage insurance and life insurance?

Even though mortgages and life insurance may sound similar, they have distinct characteristics.

Mortgage insurance is a type of home loan insurance designed with a reducing sum insured. However, the death benefits will decrease over time to match your mortgage balance, while the premiums will remain constant. Mortgage insurance will also protect your heirs if you die. The payout will be paid to your heirs or lender depending on the type of mortgage insurance you choose: MRTA or MLTA.

Meanwhile, life insurance offers the most cost-effective financial protection for your family. It has a fixed death benefit and premiums. You must purchase a specific plan, pay the premiums, and the payout will be paid directly to your beneficiary after your death. However, there are two types of insurance under life insurance: term life insurance and whole life insurance. Term life insurance and whole life insurance both provide the same death benefit. Still, term life only protects you for a set number of years. In contrast, whole life protects your entire life (coverage that lasts as long as premiums are paid).

Don’t worry, the table below explains the distinction between mortgage insurance and life insurance:

Mortgage Insurance Life Insurance
Protection
Only the mortgage is covered (based on your mortgage selection) Cover mortgage and other needs
Beneficiary
Your lender will be the sole beneficiary You may name anyone as your beneficiary
Coverage
Coverage will reduce over time (based on your mortgage selection) Same coverage throughout the terms
Cost
Significantly more costly This is less expensive for the same coverage
Payout
At death, the payout will be paid to either the lender or the beneficiary (depending on your mortgage selection) At death, your beneficiary will receive the payout
Types of funds
Flexibility to choose funds No control over the usage of funds

Which one should I get: mortgage insurance or life insurance?

Both had their own benefits, either a mortgage or life insurance. Whichever you choose depends solely on your decision and affordability. Though mortgage insurance is not compulsory, it is related to your property and is excellent protection. However, it depends on your lender because some lenders might make it mandatory for you to take it.

As for life insurance, it is suitable for those who want to protect their family and give their family the power to make a decision after their passing. But bear in mind, under life insurance, there are two types: term life insurance and whole life insurance. Life insurance protects you only during specific years. In contrast, whole life insurance covers you for the rest of your life as long as premiums are paid.

It’s best to get life insurance because it gives you more flexibility in planning, and you don’t have to wait until you buy a house to get coverage. You can also use the same term plan to insure your subsequent properties.

How much insurance should I get?

When protecting your loved ones, you can never have too much insurance. The most important thing to remember is that before you purchase any insurance, ensure that it protects your property’s value and provides protection and coverage to your beneficiary.

As a result, if something were to happen to you, you would know that your property would be paid out based on the mortgage insurance. Your beneficiary would receive the payout and be able to live their life without an undue financial burden.

Verdict

Insurance is critical in our lives today to protect not only ourselves but our family and property. So, both mortgage and life insurance have their own benefits and protections, but before you decide, do some research on each insurance company and the benefits they offer. Make sure any insurance company and the product you choose meet your needs and budget. Remember, it’s better to plan and get coverage today before it’s too late!

Related: Mortgage Insurance: MRTA vs MLTA | What is Home Insurance? Should I Get It?

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