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mortgage insurance

Mortgage Insurance

Mortgage Life Insurance is an insurance policy that guarantees repayment of a mortgage loan in the event of death or, possibly, disability of the mortgagor. Private Mortgage Insurance (PMI) refers to protection for the lender in the event of default, usually covering a portion of the amount borrowed. There are Government loan products that also include a Mortgage Insurance Premium (MIP), essentially the government equivalent of PMI.
Mainly there are two types of mortgage insurance :
First there is Mortgage Protection Insurance. This is what most people mean when they talk about mortgage insurance. Mortgage protection insurance is what you pay independantly or possibly as part of your monthly repayments, and it protects you personally. If you die or are permanently incapacitated it will payout your mortgage. Or if you temprarily lose your income it will cover your repayments (subject to various coniditions of course).
The other type of mortgage insurance is Mortgage Indemnity Insurance. This is insurance taken out by the lender (not you), although you will be paying for it either directly or indirectly. Mortgage indemnity insurance protects the lender if you are not able to pay out your loan and they then suffer a loss on sale of the mortgaged home. The insurance covers their loss.
The thing about mortgage indemnity insurance is that the insurance company will then come after you to recover the loss they had to cover, so don’t rely on it to cover your backside should things go pear shaped. Mortgage indemnity insurance is also known as Lender’s Mortgage Insurance.


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