What would be the best option in case of a serious illness: mortgage insurance or life insurance?

In case of a serious illness, you may have to face the prospect of losing your home because you were unable to keep up with the mortgage payments. Someone may suggest that you either get mortgage insurance or life insurance, but for us, the best option would be to buy mortgage protection insurance.

Let's look at the options.

• Mortgage insurance will actually pay if you default on the loan, but this is in order to protect the interest of the lender, and not your interests. The lender can file a claim if you default on your mortgage payments, but that does not mean that you still have ownership of your home. You still may face forfeiture or the mortgage insurance company may try to recover the money they paid by initiating a deficiency judgment against you.
• As for life insurance, unless this has critical illness or disability coverage, where it will pay when you get seriously ill, it may not protect you against losing your home. With standard life insurance, your beneficiaries will get the insured amount only if you die. So, when you are seriously ill, it will not provide you with the amount you need in order to settle your monthly mortgage payments. Also, even if you have a critical illness cover, the insurance will pay only for a specified set of illnesses.
• Another hybrid of these two products would be mortgage life insurance, which is a life insurance policy that will pay off the mortgage balance to the bank when you (as the person listed on the mortgage contract) pass away.
• Now, with a mortgage protection insurance with disability or illness cover, you can receive help in paying for your monthly mortgage amortizations. It will also protect your mortgage payments in the event that you die, meet with an accident or becomes unemployed.

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