Mortgage insurance in brief
In the event of an insured’s passing, the mortgage insurance provides a lump sum payout to cover the insured’s mortgage (home loan).
Mortgage insurance directly benefits the lender, such as the bank, rather than the insured. This is because it is the lender who must recover the balance owed to them.
Hence, even though the deceased’s family receives no direct benefits from the mortgage insurance in the form of a payout, their home is permanently secure.
Relying on personal insurance to cover one’s mortgage
For perspective, one need not rely on mortgage insurance but rather their existing personal insurance, such as term or life insurance, to cover their mortgage.
However, this strategy impacts the other areas of beneficiaries’ livelihoods such as the ability to pay off the offspring’s tertiary education.
Therefore, I strongly recommend purchasing the mortgage insurance as this will reserve the policy benefits from personal insurance to protect all other aspects of dependants’ livelihoods.
HDB fire insurance, Home insurance and Mortgage insurance
HDB Fire Insurance is a compulsory home insurance policy that helps insures the internal building structure, fixtures and fittings.
Home Insurance, on the other hand, provides coverage for renovations and household content, on top of the building, fixtures and fittings.
Together, the three tools mentioned, i.e. the HDB Fire insurance, Home insurance and Mortgage insurance, will provide a comprehensive coverage for one’s home.
Some basic technical details of Mortgage Insurance
- Term insurance that can be terminated at any time without incurring penalties. This is an option when the remaining balance owed to the bank is insignificant.
- Premiums remain level even as mortgage balance decreases with each mortgage payment.
Mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get.
From what I understand, Banks these day does not make it compulsory for one to take up Mortgage Insurance whenever they take a loan. (Please check)
Written by Kurt Lim.
Kurt is a financial representative. After spending more than 10 years in the life sciences industry, Kurt has made a mid career switch, managing clients’ portfolio full time.