A mortgage life insurance is a type of insurance policy that is designed to pay off your mortgage in the event of your untimely death. The insurance company will pay off any outstanding balance left on your mortgage leaving your family debt-free. Typically, in this type of insurance, as your mortgage decreases, so does the amount of insurance.
How Mortgage Insurance Works
When mortgage insurance begins, the coverage must equal the outstanding amount on the repayment mortgage. The policy’s termination date must coincide with the date scheduled for the final payment on the repayment mortgage. The insurance company calculates the annual rate at which the insurance cover should decrease in order to reflect the value of the capital outstanding on the repayment mortgage. Some mortgage policies will include provisions for payouts if the policyholder is diagnosed with a terminal illness from which he or she is expected to die within a year of being diagnosed.
Purchasing mortgage insurance is not such a good idea. In fact, it’s hard to find any mortgage life insurance which offers good value. The main reason why purchasing this type of insurance is a bad idea is because currently, traditional mortgage life insurance rates are not as competitive, as say, most term life rates.
Reasons why mortgage life insurance is not a good idea
- Mortgage life insurance policies are generally expensive to begin with. As time goes on, these policies become even more expensive. The premiums stay level throughout the term period but the amount of death benefit becomes less at the same rate as the debt does. The cost for coverage starts out high and the policy gets worse over time in terms of the amount of death benefit.
- Mortgage life insurance will only re-pay your mortgage if you should happen to die with the insured period. This may leave your surviving spouse debt-free, but mortgage insurance will not address any other income needs of your family which may arise due to your sudden demise. Most families have financial needs that go beyond payment of mortgage.
Term Insurance Makes More Sense
- The death benefits that come from a term life policy can address any kind of debt and other financial needs your family may face.
- You can take out term life policies for a term period of 10, 20, 25 or even 30 years. If you have already finished payments on your mortgage, you may want to review your term life policy to reflect those changes. Or, you may want to use the coverage for other future expenses you may have, such as education fees of your children, or a retirement plan for your spouse. With term insurance, you have the freedom to change the objectives of your insurance policy as your life situation changes. Mortgage life insurance does not allow you this type of freedom.
- Underwriting for term life policy is cheaper. If you’re in good health, taking a term life policy could work out beneficially for you. For example, if you saved $100 on annual premiums by taking up a term life policy, rather than mortgage life insurance, this will add up to a savings of $3000 at the end of 30 years. It is always best to get an insurance policy with guaranteed lower rates than a mortgage life insurance policy.
More People Choose Term Insurance over Mortgage Life Insurance
It is more common to see people purchasing term insurance with return of premiums options instead of mortgage insurance. At the end of the term, all the premiums you have paid are refunded to you, tax-free.
Another better option to mortgage life insurance is a level term life policy. A level term life policy will give you the benefit of paying level premiums throughout the term period. And unlike mortgage insurance, your death benefits will not decrease during the full term period.
Finding the Best Deal on Term Insurance
You can get the best term insurance at the most affordable price by using online life insurance providers. Many of these not only offer the best term life insurance quote but also free professional services to help you identify policies that suit your needs the best and make meaningful recommendations. Look for online insurance providers who are BBB-accredited and are affiliated with the best life insurance carriers in the industry. They will provide you with instant insurance quotes which you can use to compare prices and products. This will help you make an informed decision and land you with a policy that best suits your needs at the most affordable price.
AccuQuote is a leader in providing term life insurance quote to people across the United States. In 1986 it began operating with a single goal: to make the process of buying term insurance as easy as possible for its customers. Their experienced professionals consistently deliver the most affordable term insurance rates by comparing thousands of life insurance policies from dozens of top-rated carriers.
About the Author
Denise Mancini-Blonda is manager of public relations and marketing communications for AccuQuote. In addition to overseeing all corporate media relations, internal executive and employee communications, she plays a key role in the overall content development of the company’s online and offline marketing campaigns. This entails overseeing and implementing AccuQuote’s social media, blog and podcast strategies, as well as its word-of-mouth marketing campaign.