Life Insurance for Mortgage Protection
When you are investigating the mortgage process, you will most likely be offered life insurance for mortgage protection. You may be offered mortgage life insurance by your lender or even an affiliated company because it can be a smart decision in the long run. Mortgage life insurance gives you enough coverage to pay off your mortgage in the event that you pass away. This is useful because your family will not have to move and uproot their lives. However, if you are not interested in coverage, life insurance is not necessary to obtain a mortgage.
If you are interested in getting life insurance to cover your mortgage, it depends primarily on your health. If you are a younger homeowner with limited medical issues, you will be able to get better quotes and greater coverage options with term life insurance. That’s why it is important to start looking right away when you are younger versus waiting until you are older. However, if you have serious health problems and can’t qualify for term life insurance, mortgage life insurance is another option that will offer more substantial death benefits than many alternatives.
Coverage With Mortgage Life Insurance
Mortgage Life Insurance refers to a set of life insurance products that are created to pay your outstanding mortgage balance in the event of your unfortunate passing. There are many different parties from your bank, mortgage lender, or even unaffiliated insurers who can offer mortgage insurance, the structure, and the benefits you can receive, vary significantly. Therefore, it’s essential to check the terms of each unique policy.
For each mortgage life insurance policy, there is a specific period of coverage, generally 15 or 30 years. However, the death benefit can be structured in multiple ways:
- Mortgage Principal: Some policies tie the death benefit to the outstanding mortgage principal. This will be similar to the previously discussed decreasing death benefit but, if you pay off your mortgage faster or slower than expected, the policy will reflect that.
- Decreasing: For the first few years of coverage, the death benefit may be fixed, but then decreases at a specific rate over the life of the policy. This is meant to simulate the rate at which the mortgage is paid off.
- Level: This is where the death benefit will remain the same over the life of the policy. This structure may be an ideal choice if you have an interest-only mortgage since the principal remains the same.
There are also mortgage life restrictions that you need to be aware of when considering different policies. Mortgage life insurance traditionally pays the death benefit directly to your mortgage lender, unlike term life insurance policies. So, if you have a greater amount of coverage than the size of your outstanding mortgage balance at the time of your passing, your family would not receive the extra payout. Also, some mortgage protection policies are similar to accidental death insurance policies and will only pay a death benefit if you pass away accidentally. This type of coverage isn’t recommended unless your family can afford to handle the mortgage payments entirely if you passed away.
Which Is Best For You?
Term life insurance and mortgage life insurance policies are similar. However, term life insurance policies offer greater flexibility with their benefits, and cheaper if you’re relatively healthy and don’t smoke. If you are in good health, then term life insurance over mortgage life insurance is a better bet for you because you will receive cheaper quotes, and the death benefit will go to the beneficiary you choose. This means, if your budget is tight around the time of your passing or your family decides to sell the house, they can use the full life insurance payout however they would like.
Mortgage life insurance quotes are typically more expensive for healthy homeowners because most policies don’t require a medical exam before purchasing. Therefore, the companies automatically assume you’re considered a higher risk and raise their rates.
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About Sam Goldsmith
With over fifteen years experience in Finance and Insurance, Sam Goldsmith brings a wealth of keen judgment, knowledge and understanding to his profession. As the Principal broker of Goldsmith Insurance Agency, based out of Denver, Colorado, he is responsible for the sales and management of the organization specializing in Life Insurance, Disability Insurance, Annuities, and Pension Planning. Licensed in over 45 states has helped Sam grow his business exponentially. Since starting our website in 2007 Sam has helped placed over 800 policies into force, well over six hundred thousand dollars in annual premium.