Group credit life insurance to protect your mortgage

Group credit life insurance is one way that banks and mortgage lenders protect your mortgage in the event of your death. The policy is taken out by the bank to insure that the debt given to the borrower will be paid even in the event of his death.

The group policy is usually for private mortgage insurance, but can also be issued for mortgage life insurance. (Not sure you know the difference between the two? Read Mortgage life insurance vs. PMI)

Don’t forget to read the fine print!

Life Insurance issued on a group basis makes it easier for you to get the cover you need, even if you are not in the best of health.

However, underwriting for such policies come during claims time. When a mortgage holder has died and it is time to make a claim, the insurance company may look more deeply into the medical records of the Person Insured. There may be cause to deny the claim. It’s important to answer the medical questions in the application form completely and honestly to avoid this from happening.

With a group life insurance policy, there is a main or “mother” policy where people are enrolled and added to the list as they come.

Here are some of the qualities of a credit group life insurance:

• Who is insured? The insured must be a borrower of the holder of the credit group life insurance.

  A person is insured under the policy’s master contract, which is held by the lender.

• How much is the insurance? Should you get level or decreasing mortgage life cover? The amount insured should be equal to amount of the debt. As the debtor pays off the debt, the amount of insurance also decreases.

  There is a maximum policy amount per person. If the amount of the debt exceeds this maximum, the debtor is insured up to the maximum life insurance coverage amount.

• Who gets the proceeds? When a debtor who is insured dies, the proceeds of the insurance is payable to the creditor who is considered the policy holder.

  The lender can require the borrower to agree to be covered under the policy or to make it an optional matter.

• How is the policy issued? This insurance is subject to underwriting rules and principles. However, rates are usually uniform across and proposed insured’s age is not considered as part of the underwriting process. Also, lenders don’t usually require evidence of insurability (medical exam or doctor’s reports) from the borrower.

  • This policy is unique since the lender is both the policyholder and the beneficiary.
  • For one contract, only one life is to be insured. If the mortgage applicant or borrower is actually a group of people (more than one people are to sign the debt instrument), the lender will choose which of these to cover under the insurance policy. The person whose name is at the topmost of the list is the one that is usually insured.
  • The waiting period is usually not considered in this policy. However, the suicide clause will apply, considering the length of time it takes for the mortgage to be fully repaid.

The master contract will stay in force for as long as the lender continues paying for the premiums. Once the premiums are not paid or the lender is unable to list a certain number of debtors under the policy, the contract may be terminated.

When the master contract is terminated, all the individual debtor’s insurance coverages will also be terminated. As for cover for each individual under the group policy, this will cease when the debt is fully paid.

If you are concerned about getting a more “permanent” cover, then you should consider getting individual term life cover. Learn more about choosing mortgage vs. term life insurance.

Latest update: 17.06.2013

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Other sites: critical illness cover, lifeassurance.org.