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What happens to your mortgage life insurance policy if...?

Insurance is usually about the “what if’s”. What if something happens to me? What will happen to my family?

Mortgage life insurance covers the “what if’s” about your mortgage and the possibility of you dying before the mortgage is fully paid. Even if you already are covered with some amount of life insurance, it will be good to consider getting a mortgage life insurance policy to have specific coverage for your mortgage. This way, your family can use the proceeds from your original life insurance policy/policies since the mortgage has already been taken care of.

However, there may be some questions nagging your mind about the possibilities related to your mortgage life insurance policy. Let’s take a brief look at some of these issues, shall we?

Misstatement of health status and other relevant information

Upon your application for life insurance for your mortgage, you will be asked some health questions that is answerable with a “yes” or “no”. What happens when you mistakenly state your age? What happens when you say you are not a smoker, when in fact you are at the time of the policy application? What happens when you tick “no” to one of the health questions and it turns out that you knew about a pre-existing condition?

If the misstatement is minor and will not change how the policy is issued, or if the change will only correspond to a change in premiums, the insurance company will simply adjust those premiums. However, if the misstatement pertains to something major which will have caused the insurance company to postpone issuing your policy or to decide not to issue a policy to you, this may mean serious problems when it’s time for your beneficiary (in this case, the mortgage lender) to make the claim. This means that your family will still need to pay for the mortgage to ensure that they keep the house.

Change in health and employment status during the lifetime of the policy

What if you suddenly become sick while the policy is in force? Does your employment status affects mortgage life insurance?

These actually will not affect the policy for as long as the sickness cannot be classified as a pre-existing condition. As for employment, it does not have any bearing on the mortgage life assurance cover. For as long as you pay the premiums, the cover will continue until the end of the term.


What happens when the insured person commits suicide? Will the claim be paid or denied?

There is a waiting period for suicide, usually 1 to 2 years. If the insured commits suicide within the waiting period, regardless of whether that person is sane or insane, the insurance company will not pay the claim. What the insurance company will normally do will be to refund any paid premiums minus any indebtedness or fees (i.e. processing fees, etc.). The waiting period is a safeguard that aims to ensure that the person applying for the coverage does not do so because he plans to commit suicide in order for his family to make a claim.

Now, if you have any questions with regards to how an event can affect your mortgage life insurance, the best thing to do will be to call your agent or your insurance company. You can also read the policy’s terms and conditions.

Change in interest rates

What happens when the interest rate applied to the mortgage loan is higher than the rate of decrease applied on life insurance for repayment mortgage?

When the interest rate on the mortgage is higher, this may mean that you won’t have enough cover as the loan progresses over time. If death comes at that time, your family will still have to pay the difference between the actual loan amount and the proceeds of the mortgage life cover.

There is an additional option you can add to the cover – the Repayment Guarantee. This guarantees that the full amount of the mortgage is paid, regardless of whether the actual mortgage cover is lower. However, some conditions will apply. For instance, the yearly loan interest rate should not exceed a certain specified limit.

Changes in the policy

What happens if I want to make changes to my mortgage life insurance cover?

For some types of mortgage life insurance policies, you can make the following changes:

You also have the option to switch to another mortgage life insurance provider. If you have already cancelled your cover, you can still have the mortgage life insurance policy reinstated within a specified period.

Latest update: 15.06.2013

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