One type of life insurance, mortgage life insurance, pays out if the policyholder dies before paying the mortgage in full. Mortgage life insurance is typically term life insurance with a diminishing term life. If your loan balance decreases, your death benefit will also decrease.
While home mortgage life insurance can be a good idea in some situations, regular life insurance can be just as valuable and a better solution for some individuals. With life insurance, you can choose your own beneficiary, but with mortgage life insurance, the beneficiary is the lender.
- What is that
- How it works
- How much does it cost
- Advantages and disadvantages
- You need that
- frequently asked questions
Mortgage life insurance pays the death benefit directly to the lender to pay off the mortgage if the policyholder dies before the balance is paid in full.
People with no other financial obligations or with health problems may be best suited for life insurance with mortgage protection.
Buying life insurance is usually cheaper for most people. It also allows you to choose your own beneficiary and cover costs other than the mortgage.
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What is Mortgage Life Insurance?
Mortgage life insurance islife insurancewho pays the mortgage if you die while the loan is still being paid off.
Banks and lenders often offer mortgage protection life insurance as a policy with a decreasing term. The face value of term life insurance is equal to your mortgage balance and decreases when you pay off the mortgage. The lender is the beneficiary. So if you die before the mortgage is fully paid off, your loved ones don't have to worry about repaying or selling the home to pay off the loan.
life insuranceprovides a death benefit for a specified number of years, usually from 10 to 30 years. For example, if you take out a 20-year life insurance policy and die in the 15th year, your beneficiary will receive the face value as a death benefit. Each life insurance company offers different plans, so get severalquotesComparison helps you to find the best life insurance plan.
How Does Mortgage Life Insurance Work?
Mortgage life insurance works by giving the lender a death benefit equal to your mortgage balance if you die before you are paid. Life insurance with mortgage protection removes the financial burden of paying off your loved one's loan, so the home can stay with the family after you're gone.
Mortgage life insurance is a special form of life insurance. Although similar in some ways, it is different from how other types of life insurance work, including term insurance.
Related:How does life insurance work?
death benefitSee AlsoIs mortgage insurance mandatory?Mortgage Life Insurance ExplainedIs home insurance compulsory?
Mortgage life insurance death benefits are intended solely to pay off the balance of the mortgage. It decreases together with the loan balance. Unlike other types of life insurance, where you can choose a beneficiary who can do whatever you want with the money, a life insurance policy with mortgage protection pays directly to the lender and your dependents receive nothing from the policy.
Depending on the type of life insurance you get, you may need to undergo a medical exam to determine if you are eligible for coverage and what your rate is. With mortgage life insurance, there usually isn't onemedical examinationAs a result, some people may find that they qualify for life insurance with mortgage protection more easily than other forms of life insurance that require a medical exam.
Because a medical exam is not usually part of the qualification process, the cost of mortgage life insurance can be higher if you are in good health. However, if you are in poor health, the cost of mortgage life insurance can be cheaper compared to other life insurance policies that use health as a ranking factor.
There is usually no cash value on a life insurance policy with diminishing mortgage protection because it is a term life insurance policy and offers no cash value. Mortgage life insurance is rarely found as permanent life insurance, i.e. a type of life insurance with a cash value component.
Mortgage life insurance doesn't allow youChoose your own beneficiary. If you die and have life insurance with mortgage protection, the beneficiary is the creditor and receives the death benefit. When life insurance is needed for a mortgage and other financial commitments such as college or income support, regular life insurance may be a better fit.
How Much Does Mortgage Life Insurance Cost?
The cost of mortgage life insurance can be more expensive than life insurance if you are in good health as health is not such an important factor. But if your health is poor, you can save with life insurance with mortgage protection compared to normal life insurance with preventive medical check-ups.
For example one20 years of life insurance can costfrom $278.93 to $3,425.60 per year - or $23.24 to $285.47 monthly. The fee depends on your age, gender, health, lifestyle and other criteria.
How much mortgage life insurance is per month depends on several factors, including:
- Term of the Mortgage
- loan balance
- Answers to application health questions
- Any drivers you selected (if available)
While mortgage life insurance can be a cheaper alternative for those in poor health, it may not be the best choice for those in good health. If your health is good, you should consider getting life insurance, even if you're only using life insurance to pay off your mortgage. Compare offers forlife insuranceLife insurance with mortgage protection can help you decide which policy is the best choice for you.
What are the pros and cons of mortgage life insurance?
The main benefit of mortgage life insurance is paying off the mortgage if the main breadwinner dies. It relieves the policyholder's family of the financial burden of continuing to pay the mortgage or risking losing the family home. But as in everyonetype of life insuranceThere are pros and cons to getting mortgage life insurance.
- Pay your mortgage bank directly
- May be cheaper for people with health issues
- No medical examination
- pilots can offer
- Heirs can stay in the family home
- The mortgage balance is paid in full
- Your loved ones will not receive any of the payment
- It cannot be used for final releases or anything else.
- Decreasing salary but fixed bonus
- It can be expensive for healthy people.
- The insured cannot choose the beneficiary
- I can't get any offers online
- Difficult to do comparison shopping
For people with health problems who do not want a medical examination, mortgage protection life insurance can be cheaper. It can allow heirs to stay in the family home without making mortgage payments. If the policyholder dies, the policy pays directly to the creditor so the family can focus on grieving for the loved one.
However, mortgage life insurance does not give you the ability to choose your beneficiary and the death benefit can only be used on the mortgage balance. The price does not change even if the balance decreases. The insured person's family will not see any benefit and it may be difficult to make comparison purchases as you cannot get quotes online.
While mortgage life insurance has its benefits, it's not for everyone.
Should You Get Mortgage Life Insurance?
You should consider getting mortgage life insurance if you have health conditions and don't want a medical exam. If you are buying life insurance to cover your mortgage payment and have no other debt, life insurance with mortgage protection may be worthwhile. But if you're young and healthy, or the main breadwinner with high living expenses and other financial obligations on top of your mortgage, regular life insurance is probably best.
If any of the following scenarios apply to your situation, you should consider mortgage life insurance.
You pay a mortgage
If you are mortgaged and have a high income, mortgage life insurance can be a great option to save loved ones from paying premiums after you leave. However, mortgage protection insurance generally has higher premiums than life insurance, so it's not the best choice for people on low incomes.
Your other financial obligations are minimal
Most people take out life insurance to pay for various obligations such as mortgages, car payments, children's tuition and college expenses, income replacement, and graduation costs. However, if you have little or no other financial obligations, mortgage life insurance can be a good option.
You want to make sure the money goes toward your mortgage payment
With regular life insurance, your beneficiary can use the death benefit for whatever they want, regardless of their desires. Mortgage life insurance guarantees that your lender will receive payment because you are listed as a beneficiary on the policy.
You are not in the best of health.
If you have health problems you may be able to get a cheaper rate on mortgage insurance compared to life insurance elsewhere as medical examinations are infrequent. However, if you are young or in good health, you may be able to get a cheaper rate if you complete your life insurance health check.
you are a veteran
Mortgage life insurance for seniors may be the best choice as there is a greater likelihood of health issues and other minimal financial obligations. Depending on the company and policy, there may be an age limit for mortgage life insurance.
Mortgage life insurance versus regular life insurance
In general, regular life insurance is better suited than mortgage life insurance for most people, especially young or new householders or those with many financial commitments. Older people may be best suited for mortgage life insurance compared to other age groups.
Many people take out life insurance to pay off a mortgage, but you can do this with any type of life insurance. Since mortgage life insurance is only limited to paying off the mortgage, you cannot use it for anything else, includingreal estate planning, and you cannot choose your beneficiary.
The limitations of life insurance with mortgage protection make it a poor choice for most people unless they have no other expenses to pay. Seniors with health issues may also considerLife insurance with purchase guarantee, which might be a better choice than mortgage life insurance.
Compare life insurance rates
Make sure you get the best rate for your insurance. Compare quotes from major insurers.
frequently asked questions
Knowing what mortgage life insurance is and how it works can help you decide if it's right for you. Getting answers to the most common questions about this topic can help you in your search.
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About Mandy Sleight, Licensed Insurance Agent
Mandy Sleight is a licensed insurance agent and has been in the industry since 2005. She is licensed in the areas of property, casualty, life and health insurance. Mandy has worked for well-known insurers such as State Farm and Nationwide Insurance, and most recently served as operations coordinator for a start-up social services company.
Mandy earned her bachelor's degree in business administration and management from the University of Baltimore and her master's degree in business administration from Southern New Hampshire University. She uses her extensive knowledge of the insurance and personal finance industries combined with her experience as a writer to create easy-to-understand and engaging content that helps readers make wiser decisions with their budgets and finances.