Insurance is one of the requirements for taking a loan. The confusion arises when we ask what type of insurance it is. Life insurance, mortgage insurance, title insurance, property insurance? The answer is all of them are required, maybe not altogether and for all lenders, but they are all applicable. Let us see exactly what each one is and how it can affect you.
Life Insurance
Typically it is the one people do not like to talk about. It covers the mortgage debt in case the borrower dies or has some inability to earn money. In such cases, the policy covers the payment of the instalments; the lender has a security and does not have to resort to repossession.
It might be a requirement for people of a certain age or weak health. Besides, in the event of the borrower’s death, those next of kin at least have a house to live in, without adding more worry to their existing grief.
Mortgage Insurance
It is similar in result, but not in the cause. This insurance policy covers the payments in case of financial default, loss of a steady job, business failure or any other reason that causes the borrower to stop paying the loan. Obviously it will have to be duly documented, but it is feasible.
There is another variation of this policy, which is required if you are making a down payment of less than 20% of the total value of the house. It covers up to 20% of the appraised value and automatically expires when you reach that amount through the monthly payments.
Title Insurance
More insurance for the lender. This covers the title deed from an unduly sale on the part of the seller, or any other claim or lien that could mean that the house is not rightfully owned by the seller. This is necessary at closing time. You pay a premium which covers the insurance as well as the search in real estate records to establish that the seller is the legal owner of the property.
Property Insurance
This insurance protects you, the new owner of the property and the lender as well. Should the house catch fire, or be affected by landslide, flood or any other disgrace, the property insurance covers the cost of the house, although they will usually pay not more than the mortgage debt.
All Four Are Applicable
They are all applicable but some may not be required from you at the time of closing the mortgage. It goes without saying that the premium of these policies is to be added to the expenses of your loan, so this is important to evaluate at the time of choosing a lender.
Some lenders may not require mortgage insurance, since you have a good, steady job and it will be more convenient for you to save this important cash. However the presence of insurance is never too much, but that will depend on your evaluation alone. We tell you what they mean, you decide.
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