What Is Mortgage Life Insurance and Do You Really Need It?

Posted by Justin Havre. on Wednesday, September 4th, 2019 at 1:01pm.

Mortgage Life Insurance vs Mortgage Term InsuranceWhen you have purchased a new home you'll also be asked whether you'd like to buy mortgage life insurance as well. This is sure is that is offered by the same thing that you're dealing with for your mortgage. In some cases it will make sense to get this type of insurance and other times it's a complete waste of time and money.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

The Difference Between Mortgage Life Insurance and Term Life Insurance

There are significant differences to consider when choosing whether mortgage life or term life insurance is the best choice to meet your specific needs. Whereas mortgage life insurance is designed to pay off mortgage balances in the event of the owner or owner’s demise, life term life insurance allows policy holders to choose their benefit amount. Most buyers opt to purchase enough term life insurance to cover a good portion of their income to assist their families with expenses.

Term life policies offer greater flexibility concerning where families can spend their benefits. Many mortgage policies may actually be paid directly to lenders, rather than a chosen beneficiary. Another distinction is that term life coverage can be extended for time frames longer than your mortgage loan period, and some of these policies cease if you refinance.

Furthermore, term life insurance can be either more expensive or less expensive than mortgage life insurance depending on your situation. Those who are in good health may find that they get better rates and more options for less money than those with chronic health problems. Because most term life policies require a medical exam for applicants, those who don’t qualify might find mortgage life insurance to be their best—if not only—option.

If You Already Have Term Life Insurance

If you're already set up with term life insurance on your own home you may not need to get mortgage life insurance at all. It all just depends on the loan term is expected to last an whether you will be covered for the entire remainder of the mortgage.

You don't need to over insure yourself, especially if you have a great insurance provider that you're working with and have a policy that works best for you. There's really no need to get extra insurance if you already have enough.

When You May Want To Consider Mortgage Life Insurance

When you have this type of insurance you'll be paying premiums directly to the bank that has issued your mortgage and your policy. You are taking out a mortgage directly on your home, which means that should anything ever happened to you, the insurance money will be be paid directly to the bank instead of to your benefactors.

With term or whole term life insurance, if anything happens to you the insurance payout is given to the benefactors. They will be the one they can decide what is done with the money. While they may decide to put the money into the mortgage and pay it off quickly, they may decide to use it on things such as taking time off work to finish grieving.

Which Option is the Best?

If you are offered mortgage life insurance after you've purchased a home, you're much better off taking a look through your term life or life insurance options before agreeing to a life mortgage deal. In many cases you'll find than term life is better overall since the amount paid out remains stable throughout the term of the loan. With a life mortgage policy the amount that would be paid out goes down as the principal on the mortgage declines.

In the end it all comes down to two things. Do you want to have the money go to the bank if something should happen to you or would you like it to go to your benefactors instead? For most people, they would like to see the money end up in the hands of their loved ones over giving the money to the bank for the sole purpose of handling their mortgage.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

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