The main reason a borrower would get a mortgage life insurance policy is to assure that his family would not have to worry about paying the mortgage in case of his death.
Decreasing term life and level term life are the two kinds of mortgage life insurance currently offered.
Decreasing life is by far the most popular and it is for the apparant reason that the benefit of the policy decreases with the amount owed on the mortgage- taux hypotheque.
This feature makes the premium affordable.
Those with a repayment type home loan, where the balance decreases over the term of the mortgage, will usually opt for this type of insurance.
The initial policy is for the amount of the loan, which gets lower as the mortgage gets lower.
This kind of policy only covers the insured if he dies during the term of the policy.
Once the policy terminates, there is no residual value and if the insured is alive at the end of the policy, nothing will be paid.
The only reason this insurance is to pay off the mortgage upon the death of the insured.
Level term insurance is the other main type of mortgage life insurance.
This policy is determined not by the initial amount of the loan, but by its term.
For example, if you have a 30 year mortgage, you would buy a 30 year term policy; for a 15 year mortgage, you would buy a 15 year term insurance policy.
The benefit does not change during the course of the policy, as happens with decreasing term life insurance.
The policy will most likely cover the repayment of the loan with funds left over for the beneficiary if the policy has been in effect for a time and therefore the mortgage principal has been partially paid down.
Usually, this insurance is used for mortgages with balances that stay the same throughout the life of the loan, such as interest only mortgages.
In this instance, both the amount of the mortgage and the amount of the policy remain the same.
The benefit portion (the amount paid to the beneficiary) of the policy remains fixed.
Just as with decreasing term life insurance, there is no surrender value and the insured receives nothing if he is still alive at the end of the term of the policy.
