Mortgage Life Insurance is a type of term life insurance obtained by borrowers of a home mortgage. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance policy proceeds.
An owner of property who has taken out a mortgage on the property, can purchase morgage life insurance.
Mortgage Life Insurance pays off the mortgage upon the death of the mortgagor/owner. Premiums remain level, even as the policy’s benefit decreases.
To make the most of current low interest levels for refinancing homes, requires analysis of countless options. It can feel like an advanced degree in law is required to make sound decisions for the best deals without paying more than necessary. You need to figure out the best buy and what to avoid.
A good start is to consider redundancies to avoid duplicate purchases. Don’t buy the same thing twice due to two different names. For instance mortgage life insurance promises mortgage payments in case of disability or death.
Peace of Mind
Life Insurance for Mortgages or Reverse Mortgages can give you peace of mind by ensuring full repayment of your mortgage in case of terminal illness or death. This coverage provides a lump sum to repay outstanding payments in case of death or fatal illness. The premiums to be paid decrease each year in line with the decreasing sum owed to the mortgage lender. In case of a repayment mortgage, your monthly payments repay both the interest and capital initially borrowed, sparing your family the burden of substantial debt at your passing.
Current low home mortgage interest rates are prompting more and more people to become homeowners. Of these, many are first-time buyers who never expected to be able to own their own place. They have almost no knowledge of the value of insuring their balance through life insurance. People are increasingly taking out critical illness policy to pay off mortgage when critically ill. This makes sense as 1 in 4 men and 1 in 5 women are likely to suffer a critical illness before retirement.
The policy ensures that apart from death or terminal illness, critical illness will also result in repayment mortgage being fully repaid. Thus it can be a big relief. It should be possible to buy a combined mortgage and critical illness policy with a guaranteed level premium. Spectrum Insurance Group specializes in finding these policies for their clients, due to the fact that many carriers will not offer a level (guaranteed fixed) premium on the purchase of critical illness insurance alone.
Criticized By Federal Insurance Regulators
Mortgage life insurance has come under criticism from consumer advocates and federal insurance regulators, who warn homeowners that it may not be good value. The main concern is that unless you die or become disabled before your mortgage is paid, it will pay nothing. In contrast, a standard term life insurance policy pays your policy amount to beneficiaries on death. According to the National Association of Insurance Commissioners (NAIC), mortgage insurance lenders pay out only about 40 cents in benefits for every dollar spent by consumers on this type of policy, while it is 90 cents on the dollar paid out to consumers with regular term life insurance policies
However, at least one reason may cause some to buy mortgage life policy, as there is no medical examination. It is thus a viable option for homeowners with health conditions that prevent them from taking other types of life insurance.
But in general, during refinancing your existing life insurance coverage must be analysed. If sufficient to cover your mortgage, nothing more would be required. Or you may wish to increase the amount of regular term life insurance you have to higher amount to include all debts owed and necessary funds to provide for your loved ones when you are no longer there to do so.