Mortgage life vs. term life insurance: which is better?
To put it simply…
When you die, mortgage life insurance will pay off the remaining mortgage loan, while term life insurance can be used to pay not just the mortgage loan but also other needs the family has.
Is there a difference between the two? Or will term life insurance do just as well in place of mortgage life insurance?
Actually, mortgage life insurance is sort of a specialized term life insurance policy. It is a term life insurance cover specifically for your mortgage.
Below is a table that outlines the differences between a mortgage life insurance and a term life insurance.
Mortgage Life Insurance | Term Life Insurance | |
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Type of coverage |
This is specifically for your mortgage. Upon your death, the insurance kicks in to fully pay for the mortgage, depending on the coverage schedule provided in the policy. The money is paid directly to the lender. |
This is provided for the beneficiaries for them to spend at their discretion. Depending on how much the proceeds are, it can be used to pay off the mortgage, as well as other debts, and also for monthly household expenses. |
Amount of coverage |
The coverage depends on the amount of mortgage you have. This can be programmed to decrease as the level of mortgage debt decreases due to regular mortgage payments. |
The Insured can choose the policy amount, depending on his budget and needs. |
Length of coverage |
The insurance is usually designed to last until the mortgage is paid off. At that time, the insurance will have tapered off to zero. That means you won’t have coverage once the mortgage is paid off. If you plan to sell your house sometime in the future and buy another house, the insurance will not transfer to the new mortgage. The same is true if you are thinking of changing your mortgage company. |
The insurance stays with you for as long as you decide to renew the policy. However, since this is a term insurance cover, the premiums may increase as you age. |
Purchase options |
If you buy this through your lender, you can also have this included in the financing package so that you also pay more affordable premiums. Of course, this may mean that interest rates may be tacked on to your premiums. You can also apply for mortgage life insurance from the providers, such as the ones listed in this website. Know more: How to apply for mortgage life insurance |
You will need to pay this depending on the agreed-upon schedule with the insurance company. |
Pros |
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Cons |
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The best of both worlds: getting both products
There really shouldn’t be a comparison between the two, since the products are created for a particular need. Our suggestion? Get a combination of both. Buy mortgage life insurance to cover your mortgage and buy term life insurance to cover the rest of the family’s needs – other debts, future educational costs and lost income.
Know more about who needs mortgage life insurance.
Latest update: 17.06.2013
Get your mortgage life insurance quote now, fill our form on the right.
Also feel free to visit our sister critical illness cover website.