See below why you should consider having a term life or separate life insurance policy versus creditors' insurance or mortgage insurance sold by a bank:
1. Post-underwriting: Underwriting in the bank insurance is done later. Companies verify eligibility after filing a claim; for example, you may be paying premiums for many years, and when a tragedy occurs, your loved ones may learn that you were never eligible for insurance.
2. Cost: Mortgage life insurance with fewer features and flexibility often costs more than a standalone property insurance policy.
3. Portability: If you buy insurance from your lender, it may go away if you refinance, but in the case of a new lender, you will require a new insurance plan based on the age reached at that time. Just as you do not want to depend on you’re the life insurance coverage of your employer, if you change jobs, you also need to make sure your insurance doesn't fade just because you've found a better mortgage.
4. Designated Beneficiary – The funds if something happens will not get to your loved ones. Mortgage insurance plans bought through the bank automatically cancel your loan, regardless of the situation your family faces after your demise. An individual life insurance plan allows you to name your spouse or children as beneficiaries. This will give them the flexibility to pay the mortgage when they think the time is right.
5. Decreasing profit - As mentioned above, the policy of the banks' creditors is diminishing interest, that is, the interest can disappear right before you. Mortgage insurance benefits gradually decrease in a bid to keep up with the declining balance of your debt. These plans are like a runaway train. The death benefit goes anyway even though you can move to a bigger house with a bigger mortgage. Purchasing a single life insurance plan keeps you in control, allowing you to reduce benefits as you deem fit or maintain a level of benefits for life.
6. Preferred Underwriting - The pre-underwriting policy allows the insurer to independently determine if you qualify for "preferred" charges that will further reduce premiums.
7. Portability: a term insurance policy owned by individuals will, in most cases, convert the policy without the need for medical treatment into a permanent solution. A bank-owned creditor's insurance policy does not provide this benefit, which is important especially if one becomes ill and no longer qualifies for coverage.
8. Consolidation of Benefits - By combining mortgage insurance with other insurance needs, such as education, child care, income replacement, etc., you will benefit from multi-policy rates and tiered deductions (insurance companies generally discount at a range of 250,000 insurances), together with the simplicity of knowing how much insurance you have in one place. The bank only allows you to insure your mortgage.
9. Shopping in the market - Purchasing a life insurance policy from a licensed broker allows the market to search for the best possible solution from a vast range of insurance companies. Banks often function with a single insurance firm to provide a single solution. In addition, a licensed professional has the responsibility to sell on a needs-based approach and can assess your needs accurately.
10. Speak to a licensed insurance professional - Many bank employees who sell mortgage insurance to creditors are not eligible and are not licensed in life insurance. Licensed professionals buy from the market.
Finally, when considering life insurance, be sure to consider serious illness and disability insurance in case you are unable to pay your mortgage because of serious injury or illness.