Mortgage insurance and term insurance are different types of insurance products but share some common features. Mortgage insurance pays benefits on a home loan default, with death of the mortgage holder a commonly covered event. Term insurance is one of two common life insurance products that pays benefits to survivors of the insured.

1.Mortgage Insurance Basics:-Mortgage insurance is paid for by a homeowner to protect the mortgage lender in the event of default. It is often required in government-sponsored loan programs. Teach Me Finance says that mortgage insurance is most often required by lenders, such as the Federal Housing Authority, when the borrower's down payment is less than 20 percent. Homeowners can buy non-required private mortgage insurance as well.

Term Insurance Basics:-Term and whole life are the two common life insurance products purchased by individuals. Term insurance offers a death benefit guarantee for a specific time frame to designated beneficiaries of the policy holder, according to the Quick Quote definition. The benefit is paid only if the policy holder dies during the insurance term period.

Guaranteed term life insurance policies typically specify term periods of five years, 10 years, 15 years, 20 years or 30 years. Term insurance is often advantageous to young people who want financial protection for surviving family. Policies pay a lump sum benefit, usually tax-free, upon death. Term insurance can often be converted into a whole life plan at some point. Term insurance does not have the savings and investment components of whole life plans.

Comparisons

The Life Insurance Hub points out that a type of term life known as a "decreasing term policy" is often used as an alternative to mortgage protection insurance. Both term life and mortgage insurance assist survivors with financial obligations after the death of an income earner. Mortgage insurance assists through repayment of mortgage obligations. Term life payments can be used to meet mortgage obligations as well as other debt and expense commitments.

Many Canadians sign up for the bank’s mortgage life insurance without fully examining their options. The chart below gives a quick snapshot of the differences. In addition to the benefits listed below you could be paying thousands of dollars more in insurance premiums over the life of mortgage by taking out the banks plan.

Term insurance saves you money.

When buying a home or renewing a mortgage, many people think they are obligated to sign up for their bank’s mortgage life insurance but it’s important to remember that you have options.

Term life insurance is a great alternative to your financial institution’s regular mortgage life insurance because it offers you affordable premiums plus the following key advantages:

1. GREATER CONTROL  – funds go to your beneficiary not the bank

Mortgage life insurance bought from a lender will typically pay the death benefit directly to the bank at your death. Term life insurance will pay the benefit to your beneficiary (e.g., your spouse) not the bank. This gives your beneficiary the freedom to choose how best to spend the money. For example, some may decide that paying down the mortgage is the highest priority, while others may want to use the money for a more pressing expense that arises at the time.

2. COVERAGE AMOUNT DOESN’T SHRINK with your mortgage

The coverage amount under typical mortgage life insurance declines as your mortgage balance decreases. In addition, you continue to pay the same premiums with that decreasing amount of insurance coverage. With term life insurance, your coverage amount remains the same.

3. NO NEED TO REAPPLY

With mortgage life insurance, you have to reapply any time you switch lending institutions. But with term life insurance, unless you want to increase your coverage or terminate your plan, your policy is in place regardless of any changes made to your mortgage, for the full term of your policy.