Life insurance provides essential financial protection to your loved ones by covering major debts including mortgages. The purpose of mortgage life insurance is to protect your family from debt responsibility after your death.
What is Mortgage Life Insurance?
Mortgage life insurance is a type of life insurance policy that pays off your outstanding mortgage balance in the event of your death. “It provides peace of mind knowing that if the unexpected were to happen, your family won’t have to worry about making mortgage payments and potentially losing their home”, says Zach Shepard, Principal of Braddock Investment Group Inc.
Many people often confuse mortgage protection life insurance with private mortgage insurance (PMI) or mortgage insurance premiums (MIP), but these are entirely different concepts, says Zach. Mortgage protection life insurance is a policy designed to pay off your mortgage if you pass away, providing financial security for your loved ones.
On the other hand, PMI and MIP are requirements from your lender to protect them in case you default on your loan, and they don’t offer any direct benefit to you or your family.
Types of Mortgage Life Insurance
There are two main types of mortgage life insurance: decreasing term and level term.
- Decreasing Term: This type of policy is specifically designed to cover a mortgage, so the coverage amount decreases over time as your mortgage balance decreases.
- Level Term: This policy offers a fixed amount of coverage throughout the entire term of the policy, regardless of how much your mortgage balance reduces over time.
Benefits of Mortgage Life Insurance
Protection for Your Family
The most significant benefit of mortgage life insurance is that it provides financial protection for your loved ones if you were no longer around to provide for them. Zach also says “it ensures that they can continue living in their home without worrying about making mortgage payments”.
Peace of Mind
The knowledge that your family will receive proper care after your death brings both peace and security to your life. This allows you to concentrate on other vital life matters while your family members remain financially secure.
Affordable Premiums
Mortgage life insurance typically has lower premiums compared to traditional life insurance policies, making it more accessible for individuals with limited budgets. This affordable coverage gives you the opportunity to protect your family’s future without breaking the bank.
No Medical Exam Required
“As mortgage life insurance doesn’t require medical exam, senior citizens find it a perfect match”, says Evan Tunis, President of Florida Healthcare Insurance. The insurance provides coverage to people with pre-existing health conditions who do not need to undergo extensive medical examinations to get insured.
Lump-Sum Payout
Unlike other forms of life insurance, mortgage life insurance typically offers a lump-sum payout instead of monthly payments. The one-time payment from your life insurance policy allows beneficiaries to use the funds for mortgage balance payment or other expenses they need to cover.
Is Mortgage Life Insurance Worth It?
It depends on your situation, says Evan. “If you have a mortgage and want to make sure your family can stay in the house if something happens to you, then it’s worth considering,” he says. However, if you already have life insurance that covers your mortgage and other expenses, adding on mortgage life insurance may not be necessary.
You’ll also want to think about whether the higher premiums that often come with MPI fit your budget. Keep in mind, MPI premiums can change—they’re usually only fixed for a certain period and may go up after that.
