Mortgage Insurance: Necessary Evil

The one important point in insurance, regardless of the kind of insurance, is that it should be hedging an identifiable risk. Mortgage insurance does just that. In case of death it pays out your mortgage. What you should understand is that amount is in a declining balance. Your payments will knock down your outstanding principle over time so the amount/risk being hedged is declining. Ideally, the amount of insurance required should also decline over time.

The most convenient mortgage insurance you are going to have access to is most likely going to be that provided to you by the provider of your mortgage at signing. Beware, this is most likely going to be way over priced. Banks make a killing on mortgage insurance premiums. As such, they usually go to fair lengths to get you to sign up for it. One common plug is that you can always cancel it later. The assumption is that you will forget about it and just keep paying the premiums. In my experience you are best to look for independent mortgage insurance, including increasing your life policy to cover the mortgage amount. I have seen cases where bank insurance was twice as expersive as that provided by third party insurance providers.

If you are reluctant to consider mortgage insurance, that is your prerogative, but always be aware of the risk you are still carrying. If you have life insurance and a large mortgage with no mortgage insurance; if something was to happen, the beneficiaries would have an income from the life policy but would still have to deal with the cost of shelter. This may put them into a position of having to sell the home and move to a less costly home. Now imaging this scenerio: would you want your family having to go through that while getting over your death? Probably not, but if you need to cut costs this is the reality that you have in place should the worst happen. It not perfect but it is what it is. You just need to be aware that that is the contingency that you have put in place.