A MORTGAGE insurance policy is a rare add-on for Malaysians when purchasing a house with a loan from the bank.
However, it may prove to be useful especially if the asset is being financed by the sole breadwinner of the family and more so should it be owner-occupied.
RHB Banking Group’s head of wealth management and insurance Woo Chui Chui told StarBiz that many borrowers do not usually give much consideration to such an insurance scheme despite the many benefits.
“This coverage is not compulsory upon securing property financing, and many have opted to forego this coverage, ” Woo said.
“But the risk of non-repayment then can rise due to various reasons, including the death of the borrower, lost ability to work, illnesses or any other unexpected incidents, ” she added.
She noted a worst-case scenario could happen in the event one is unable to settle the outstanding loan with the bank.
“A loss of income within the family may result in the loss of ownership of the property, in addition to displacement of loved ones from their existing home and challenges in meeting other financial obligations, ” she said.
Woo said a mortgage insurance can come in handy as it helps the borrower or family who have been left behind pay a portion or all of their mortgage obligations in the event of the borrowers’ demise or total permanent disability, depending on the terms of the insurance policy.
“This helps borrowers mitigate risk and it ensures a better future for the borrower and their families, ” she said.
Woo said for peace of mind, it is good for mortgages to have a corresponding mortgage insurance policy.
“It is even more important for couples with young children, to protect and ensure their future in the event of the unthinkable.
“An option to be considered includes joint-spouse policies, which may have a lower overall cost compared to two individual policies, ” she said.
“There are of course applicable terms and conditions alongside the different types of insurance policies offered to customers, ” she explained.
Woo said most modern mortgage insurance policies are designed to cover the full mortgage amount regardless of the outstanding amount owed.
“Upon sale of the property, some policies may also allow the conversion of the mortgage insurance policy into a life insurance policy with additional riders, ” she said.
Woo said that there are two types of mortgage insurances: the decreasing term insurance and level term insurance.
The decreasing term insurance will see the amount of coverage declining over time until it reaches zero at the end of the policy term.
“This type of policy is often taken out to protect a capital or principal repayment mortgage where the level of debt is being paid down over a period of time, ” she said.
Meanwhile, the level term insurance sees the amount of cover remaining level over the whole policy term.
Woo said that this type of policy is the same as the standard life insurance coverage and it is often used to provide additional financial support to family members.
“This is because there will be an excess payment from the insurance company after offsetting the financing amount, ” she said.
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