There are some topics we’d rather not discuss. Life insurance , for example. I confess I’d prefer not to either, but if  a home mortgage is paid off  by the insurance, everything changes. Is this endorsing the insurance policy? 

Mortgage protection insurance is considered an additional obligation , part of the mortgage loan process, but it ‘s not just another piece of paper. It’s a gift.

What is mortgage protection insurance?

All financial institutions —banks, savings banks, and credit unions— require that anyone taking out a loan also purchase mortgage protection insurance. It’s quite common. Sometimes we don’t even notice it. It appears on credit card statements and in financing agreements, such as car loans . This policy has a clear purpose: if the loan holder dies or is declared totally and permanently disabled, the insurance will cover the outstanding balance of the debt and release the family and heirs from this responsibility. 

Here’s an example:

Rafael had been in a serious accident. After several surgeries, the pension system diagnosed him with permanent disability . Rafa would never work as a surgeon again . The house had an outstanding mortgage that would take another 12 years to pay off. They had bought it when Laura was born so she would have a garden to play in. Now, the family is at peace. Without the burden of the loan, my friend can stay home taking care of Laura and Rafa .

Mortgage protection insurance is a guarantee for the financial institution. If the borrowers are unable to continue making payments , the insurance will cover the losses and the bank will recover its invested capital.

You can also read: Mortgage loan requirements

What does it cover and what does it not cover?

The insurance is activated in these two cases: Death and total and permanent disability of the loan holder(s). Proof of death or illness must be provided for the bank to receive the funds and settle the mortgage debt. Each insurance company or bank has its own list of required documents for these situations.

Of course, there are limits. For example, it’s normal for the policy to stipulate that it won’t pay the bank if the loss results from suicide, a car accident , a criminal act, or a  pre-existing condition (diagnosed before taking out the loan) . Generally, these types of contracts are similar across all insurance companies. It’s always important to disclose each person’s actual circumstances to determine coverage and exclusions. For example, if you suffered from a heart condition, even if you’re now well, or if you enjoy flying small planes or participating in high-risk sports , it’s best to report it.

In any case, my recommendation is to read the fine print. Be clear about what is covered and what is not.

How do you negotiate?

When negotiating your mortgage or transferring your mortgage , you ‘ll have the option of taking out mortgage protection insurance  directly with the bank or taking out life insurance with an insurance company that offers the same coverage and terms as the mortgage protection insurance and endorsing it to the bank. It’s worth comparing quotes for both options; you could reduce your monthly mortgage payments by evaluating which one is better.

The insurance premium will be a percentage of the outstanding balance, which is the amount remaining after each monthly payment. This outstanding balance does not include late fees, interest , or charges for non-payment . Depending on your age, the loan amount, and your health declaration, you may be required to undergo medical examinations.

If you take out insurance directly with the bank, you will have these advantages :

• Premium payment included in the monthly fee
• Automatic renewal until the loan is fully paid off.

When negotiating with an insurance broker, you will need to :

• Endorsing the life insurance policy in favor of the financial institution means that the direct beneficiary will be the bank.
• Renew the policy annually until the loan is fully paid off .

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This point is important. There are two options: Individual or joint. It sounds strange, but it’s quite simple.

If you have a marital partnership and both partners will be co-owners of the property and jointly responsible for the loan with the financial institution, you can request a joint mortgage policy. In the event that one of you dies or becomes unable to work, the other partner will not be responsible for repaying the debt, even if they are a co-owner.

Similarly, they could take out individual mortgage protection insurance : in  the event of a claim, the other member of the marital partnership listed in the mortgage loan agreement will continue to bear the debt.

We hope this information has helped you understand how to endorse life insurance, as well as mortgage relief and mortgage loans.

At RTC  , you’ll get the best mortgage-backed loan . With repayment terms up to 120 months and low interest rates, even if you’re listed in Infocorp !  Learn more here.