What Is Mortgage Life Insurance?
Suppose you have purchased your own house. All the amenities and bills are yours to deal with and you can build and furnish the house however you please. When you are doing the paperwork with your associated banker, they ask you if you would like to purchase mortgage life insurance. Mortgage life insurance is a product bought directly from the bank and bought directly to take care of the house. As you continue to make payments on your home and on your mortgage, the amount of life insurance declines and reduces. The beneficiary is not your spouse, your children or any family member, it is the bank or the mortgage company. So if something tragic happens to you, premiums go directly to the bank to pay off your mortgage completely.
The disadvantage of mortgage life insurance is that the death benefit or the pay-out steadily declines over the years. If you paid $300,000 today, the benefit will not remain the same 30 years from the present. If you buy it early enough, the mortgage life insurance will be relatively cheap. An advantage of mortgage life insurance is that there is no underwriting involved, so there are no medical exams, mortality calculation or other formalities you would traditionally experience with term life insurance. You may pay $100 a month for the bank’s mortgage insurance, but the amount owing on your loan goes down with each payment. With an individual life insurance policy, the face value stays the same for as long as the policy is in force. However, the cost of term insurance goes up when you renew it. The mortgage insurance you buy through a bank terminates when the mortgage is paid off and you may be cut off when you reach a certain age, generally 70 years old. An individual policy can be held for as long as you want. If you have a term life policy to cover your mortgage, you can convert it into a whole life or permanent policy to cover taxes on your estate after your death.
Mortgage life insurance will pay off only your mortgage if you die. In other words, the bank or financial institution making the loan is the lone beneficiary. This means that your family members will still need money to pay off other debts that you have. If you do not have any type of term life insurance plan, you will also need to cover the cost of that expense. Homeowners have the option of purchasing both mortgage life insurance and a standard life insurance policy. That way you will have a policy to cover your mortgage and one to cover any other expenses and debts. If you choose to buy only mortgage life insurance, your family may not have adequate coverage for debts and living expenses upon your death.