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
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