Your Comments – My Replies #3

I would like to thank Marc for visiting my blog and posting his comment after his read on my posts on the importance of having Mortgage Insurance to protect a Mortgage Bank Loan. If you are interested in reading what I have written on this particular topic, these are the links:

Mortgage Insurance For Your Mortgage Loan – Part 1 of 3

Mortgage Insurance For Your Mortgage Loan – Part 2 of 3

Mortgage Insurance For Your Mortgage Loan – Part 3 of 3

And this is the comment by Marc:

“Hi, it seems from your article that one can purchase a mortgage insurance with a sum assured higher than the loan amount; coverage longer than the loan tenure.

Please elaborate how this insurance can help one in time of need after the loan has been paid up completely.  Doesn’t the insurance lapsed automatically once the loan had been paid up?”

This Is My Reply:

– With Regards To Higher Sum Assured and Longer Coverage Period

Any Mortgage Insurance Application will usually follow the Loan Amount stated in the Official Mortgage Loan Agreement as the Sum Assured and the Loan Tenure for the Coverage Period.

Therefore if you are looking for a higher Sum Assured (as compared to the actual Loan Amount) and/or a longer Coverage Period (as compared to the actual Loan Tenure), the condition is that you have purchased for a Private Property and signed for the Loan Agreement, for e.g. in Year 2011 for a Loan Amount Of $500,000 but… you need only to start paying the monthly loan repayment only in 2013 (that’s two years later)…

And since you have already signed the Loan Agreement in 2011, thus making you liable for it in one way or another right at that moment, the only way to protect yourself is to get the Mortgage Insurance to start protecting yourself straight away in Year 2011.

Because the actual loan repayment starts two years later, you can request for the insurance coverage period to be extended by two more years. You can also request for the Sum Assured to be slightly higher – to match the actual loan amount in 2013.

– With Regards To The Extension For Mortgage Insurance To Serve As A Normal Life Insurance

If you have no intention to clear off your Mortgage Loan earlier and follow the actual loan tenure to clear off your loans, then you may not be able to “convert” your existing Mortgage Insurance to a normal reducing term life insurance.

From some of the clients that I have spoken to, most of them have intentions to pay off their mortgage loan earlier, therefore they have this opportunity to convert their existing Mortgage Insurance into a normal Reducing Term Insurance – as part of their Financial Planning.

Notes:

1. The conversion from Mortgage Insurance is usually to a normal Reducing Term Insurance. If you have 5 years left from on Mortgage Insurance, you will have the same 5 years of remaining coverage on your converted Reducing Term Insurance. Unless the Insurance Company allows for renewal at the end of the 5 years, you can still do so. Similarly, if they have some form of conversion to a Level Term Insurance or Whole Life Insurance, you may request  to do so if you wish.

2. There are many benefits to getting a Mortgage Insurance but do not try to “cheat” an Insurance Company if you do not have any existing Mortgage Loan Agreement. There are some Insurance Agents who may claimed that they can help you to apply and to get a Mortgage Insurance approved without the Loan Agreement, but do note… if there’s a claim and should the Insurance Company not being able to verify the existence of an Official Loan Agreement, the Insurance Company may void the claim… If you are thinking of really doing this… please consult your Financial Planner on the implication and make sure you have every understandings down in writing to protect your interests.

In conclusion, I hope this post has given you a better understanding on how a Mortgage Insurance works to your benefits.

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