Mortgage Life Insurance

Pros, Cons & Alternatives

Your home is one of the most significant investments you’ll ever make (which is why you need mortgage life insurance).

Mortgage life insurance can be a way to pay off the mortgage in the event of your death, disability, or life-altering disease. Your life insurance payout can help your family pay off your home or keep up with the mortgage payments so that they may stay in the home after you are gone.

There are also optional benefits with many policies that have living benefits.  This would pay out in the event you had a heart attack, cancer, stroke or other triggering event.

If you already have life insurance, just make sure you have enough after the purchase of your house.  Applying can be done with no medical exam and you can have coverage inforce within days.

Complete the instant quote form on this page and compare rates of mortgage protection life insurance companies.

WHAT IS MORTGAGE LIFE INSURANCE?

Mortgage life insurance is a level or decreasing term life insurance policy designed specifically to repay mortgage loan if the borrower dies.

The other purpose of mortgage life insurance is to cover your mortgage payment if you stop working as a result of poor health or disability.

Mortgage insurance is similar to the traditional life insurance in how it works. You buy a policy, pay regular premiums, and it ends at the end of the policy term. If you die during the term of the policy, your beneficiaries receive a death benefit.

Mortgage protection policies are different from traditional life insurance policies. In traditional life insurance policies, the death benefit is paid out when the borrower dies. However, in mortgage life insurance the death benefit is paid out when the borrower dies while the mortgage is still in existence.

The term length for traditional life insurance policies is usually flexible.

You can choose term length in five or ten-year increments, and some insurance companies even allow custom term lengths. However, mortgage life insurance is generally locked in 15, 20, or 30 years.

Your age may also limit the term length.

TYPES OF MORTGAGE LIFE INSURANCE:

There are two basic types of mortgage life insurance:

Decreasing term insurance – the size of the policy decreases with the outstanding balance of the mortgage until it reaches zero. These policies are rarely used anymore, but still exist.

Level term insurance – the coverage amount of the policy and the premiums remain the same, it does not decrease.  The level term life insurance expires based on the term length you purchase. This is more appropriate for most homeowners.

Carefully examine the terms, cost, and benefits of mortgage life insurance in relation to your lifespan expectation and the mortgage’s lifespan.

HOW MORTGAGE LIFE INSURANCE WORKS

Mortgage life insurance is a policy that pays off the amount of balance on your mortgage should you die. In the past, this policy was acquired through banks and mortgage lenders. Most mortgage protection nowadays is sold through independent insurance agencies.

The payout often matches your mortgage balance. As your outstanding debt goes down, the unused amount of life insurance may be used to cover other financial needs at the time of your death. The amount of coverage never changes, and your monthly premiums remain the same.

With decreasing life insurance, the payout goes to the mortgage lender, not to your family. If you were to die in the fifth year of the policy term, your payout would be significantly higher than if you died on the 10th year because you would owe more to your mortgage lender.

If you’re getting a decreasing term policy to cover your mortgage debt, make sure that the term of your plan covers the length of your mortgage (example 25 years).

MORTGAGE LIFE INSURANCE: DO YOU NEED IT?


We need to examine the advantages and disadvantages of mortgage life insurance to know if you need it, or not. It may be an ideal solution for some families, but others don’t need mortgage life insurance at all.

ADVANTAGES OF MORTGAGE LIFE INSURANCE:

  1. The most significant advantage of mortgage life insurance is its convenience. It is best for people with a pre-existing condition because there is no medical exam required to buy this policy (for an accidental death policy). Accidental death mortgage life insurance may be an option if you’ve been denied whole life insurance or term life insurance because of a medical condition.
  2. Mortgage life insurance can supplement your other individual life insurance policy. Your mortgage life policy can pay off your mortgage, and your term or whole life insurance policy can take care of your bills and other expenses.
  3. Your family will have a mortgage-free home if you die; you have a terminal illness or simply cannot work due to illness or disability. Your mortgage life insurance policy will pay out upon your death and cover your mortgage expenses so your family won’t have make payments on your home without your income.
  4. Most traditional life insurance policies will only pay if you die within your coverage period. With mortgage life insurance policies you don’t have to die to take advantage of this coverage. They offer coverage which works if you’re unable to work or become disabled. This coverage is more versatile than a traditional term or whole life insurance.

DISADVANTAGES OF MORTGAGE LIFE INSURANCE:

  1. Decreasing payout – Many mortgage life insurance policies offer level premiums for the policy’s duration, but the coverage decreases with the term. The mortgage life insurance policy’s potential decrease every time you pay your mortgage. Look for the newer type of mortgage life insurance with level death benefit where payout doesn’t decrease.
  2. There is a lack of flexibility with some mortgage life insurance policies. The insurance company sends the payout directly to your lenders. The beneficiaries never see the benefit at all. With regular term life insurance, the payout is given to the beneficiaries so they can use the money as they see fit. You need to look for mortgage life insurance that pays your loved ones directly.
  3. Mortgage life insurance premium may be higher than regular term insurance. Mortgage life insurance is often used for people with unique medical conditions. If you are healthy, these plans are also ideal as you will be approved within days, not months (like a traditional term life insurance policy).
  4. Some people think that mortgage life insurance is more favorable to the lender than your family because the bank gets the payout if you die instead of your beneficiaries. With a regular insurance policy, the family receives the payout and uses it to pay the mortgage and other expenses.
  5. It is sometimes difficult to get an accurate quote for mortgage life insurance protection online. There is less transparency in the mortgage life insurance market.
  6. Mortgage life insurance is tied to your mortgage. If you buy another home or you choose a different lender, you’ll have to take it out again. A term life insurance policy will be portable and continue to cover you whatever your lender is.

DO YOU NEED MORTGAGE LIFE INSURANCE?

Your decision to buy a mortgage life insurance policy will depend on the amount of your loan and the value of your house.

You must also consider your family’s assets and your general health. The most important thing to remember is to buy life insurance to meet all your financial requirements not just pay off your home.

Things to consider when deciding whether to buy mortgage life insurance or term life insurance:

  • Do you have dependents? You might want to make sure your mortgage is covered.
  • If you have a family, it could be worth considering a term life insurance policy to cover your mortgage, but also leave something to help them maintain their standard of living after you passed away.
  • Do you have other financial commitments like credit card loans or business loans? Make sure that is included in the amount the policy will pay out.

MORTGAGE LIFE INSURANCE ALTERNATIVE

The most popular alternative to mortgage life insurance is a traditional term life insurance.

A traditional term life insurance policy is another option for mortgage protection insurance. This is because traditional term life insurance may provide higher face amount coverage and lower premiums. You have the flexibility of using your life insurance payout any way you want to.

Here are the reasons why you should consider term life insurance instead of mortgage life insurance:

  • Term life insurance may be cheaper. Term life insurance costs less than mortgage life insurance policies when you acquire a home loan. It has a lower monthly cost for applicants in good health.
  • You’ll get a fixed benefit benefit amount. Your beneficiaries will receive a fixed payout when your family files a claim. Mortgage life insurance payout decreases as you pay your mortgage (and the payout is paid directly to the lender).
  • You can get a policy enough to cover your mortgage and provide for your family. You can buy term life insurance policy large enough to pay your mortgage and provide a cash benefit to your family when you die. Choose a coverage amount that can replace your income and cover for your children’s college tuitions and other expenses.
  • There are policies that will give you an immediate decision if you need $500,000 of coverage or less and can qualify for them.
  • Term life insurance provides your family with cash to use however they want. Your beneficiaries will receive cash in the event of your death. They can use the funds to pay off the mortgage and other expenses. It is the best way to provide your family with cash they can spend however they please.
  • Term life coverage can extend past your mortgage term. Mortgage life insurance policy coincides with the length of the home loan while term life insurance policies last between five to 30 years. Buyers can choose a term based on their longest-term financial obligation.

Buying a home is the best time to evaluate your life insurance needs. It is wise to look at your family’s financial situation before you decide how much and what type of insurance coverage you need.