What is Mortgage Life Insurance

Simply put, Mortgage Life Insurance will pay off your mortgage debt upon your death. This provides protection for a property that you have already heavily invested in. After all, your home is usually one of the largest investments you will make and you want to ensure that this investment is properly protected.

Mortgage life insurance has the following features:

• May either provide a level amount of coverage or a coverage that tapers off as the mortgage debt also decreases.

• The beneficiary of the policy is the mortgage company or lender. This means that you don’t have to worry about your beneficiaries deciding to spend the life insurance proceeds on other things and failing to pay for the mortgage.

• It does not usually require a medical examination, especially for low coverage amounts. This allows persons who may have health problems to still get insurance coverage, even if this is just to protect the mortgage.

What Mortgage Life Insurance Is Not

Mortgage life insurance may be confused with other products. It is not:

• Private Mortgage insurance. PMI protects against the borrower’s inability to pay for the mortgage.  When the borrower defaults on the monthly payments, mortgage insurance will step in to cover the remaining debt. This insurance is primarily required by the lender to protect the loan they extended.

• Title insurance. This protects and ensures that any losses due to a false or erroneous title are recompensed, particularly for the new owner of the property the title pertains to.

Types of Mortgage Life Insurance

Mortgage life insurance can come in two types:

• Decreasing Term Insurance. The amount of insurance is scheduled to decrease in basically the same amounts as the mortgage debt decreases as you pay off your mortgage over time. This means that you pay higher premium at the beginning of the policy but your premium payments will also decrease over time. This type of mortgage life insurance is best for a repayment mortgage.

• Level Term Insurance. The amount of insurance remains the same over time. This is usually meant for interest only mortgages, where you only pay the interest during the length of the mortgage and repay the whole principal at the end of the mortgage. 

Joint Coverage for Mortgage Life Insurance

If you and your spouse both earn an income and contribute to the household expenses, it will be a good idea to consider getting joint coverage. You may choose a first death plan (where payment is made upon the death of one spouse) or a second death plan (where payment is made when both spouses pass away).

Additional Benefits

You can strengthen the protection provided by your mortgage life insurance policy by option for the following add-ons:

• Return of Premiums Benefit. Although this will significantly add to your premiums, this provides a refund of all premiums paid upon the termination of the coverage.

• Critical illness benefit. This pays a specified amount when you are diagnosed with a covered critical illness. This enables you to pay even if you become critically ill and are unable to continue working.

• Mortgage Payment Protection. This pays for the monthly mortgage amortizations in the event that you get disabled, sick or unemployed.

The Cost of Mortgage Life Insurance

Mortgage life insurance premiums are computed based on the following factors:

• Your age and gender

• Your medical condition (and perhaps your family’s medical history)

• The amount of insurance coverage (often depending on the mortgage amount)

• Your smoking habit (or lack thereof). Smoking will result in higher premiums for you.

• The type of insurance selected. Premiums will vary depending on whether you have a decreasing term cover or a level term cover.

• The add-ons you opt for. You can choose to have the basic mortgage life insurance coverage or opt for riders/coverage such as Return of Premium rider, Critical Illness cover or Mortgage Payment Protection Insurance.

Buying Mortgage Life Insurance

You can buy mortgage life insurance from your lender or from an insurance agent. Buying from your lender makes for convenience. You only have to make one payment for both the amortizations and monthly premiums. However, you may have savings if you buy from an independent insurance agency.

Although you usually will not need to undergo medical examinations when taking out a mortgage life insurance policy, it is important to remember to be honest in your answers to medically-related questions. This will help avoid any hassles or denial of your beneficiary’s claim.

Mortgage Life Insurance vs. Term Life Insurance

There are some parties that say that instead of mortgage life insurance, your best bet would be to get term life insurance. Term life insurance provides you with more freedom, control and flexibility with regards to your policy as well as to the proceeds of the insurance. For one, with a term life insurance, the beneficiaries will be your spouse and children. They can use the money not just to repay the mortgage but also for other concerns – such as the children’s education, payment of credit card debt, any hospital or funeral expenses left unpaid upon your death, as well as other concerns.

Also, your coverage remains with you if you are covered with term life insurance. For mortgage life insurance, your coverage will cease when the ownership of the loan is transferred from your lender to another lender.

However, mortgage life insurance is not without its advantages. Since the mortgage life insurance proceeds go directly to the lender, you don’t have to worry about losing the house. There may be instances where, if the insurance proceeds go to your spouse or your children, their priority may not be the payment of the mortgage. When this happens, your house may be foreclosed, a house that you have already spent a considerable amount for. Also, it is easier to get mortgage life insurance than individual life insurance cover due to the fact that you usually are not required to undergo medical testing in order to get mortgage life insurance.

Mortgage Life Insurance to strengthen your insurance portfolio

You can consider mortgage life insurance as an add-on to your existing life insurance protection portfolio. If you already have individual life insurance, you can earmark the proceeds to answer for your family’s other needs – payment of other debts, payment of your end of life expenses, to fund your child’s education, to pay for the family’s everyday needs. Then, you can earmark the proceeds of the mortgage life insurance specifically to secure your home.

Other sites: critical illness cover, life assurance, term life insurance quotes.

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